It could 'take a decade' to get inflation under control if Fed fails - Almonty Industries CEO
(Kitco News) The world is staring down the barrel of high inflation, slower economic growth, and commodities shortages. And if the Federal Reserve fails to get things under control, the problem could take years to fix, according to Almonty Industries CEO Lewis Black.
The war in Ukraine is directly contributing to the latest inflation surge. But it is important to remember that many commodities were already near record highs even before Russia invaded Ukraine, Black told Kitco News.
"We already had disruptions, and governments worldwide have printed so much money. When you inflict on the economy so much money, it creates inflation. The fashion right now is to blame Putin. And some commodities have rallied on the back of the invasion. But some were already at all-time highs or near those highs before that," he said. "Inflation is going to ultimately continue. The first step to recovery is an acknowledgment of your problem. And until that happens, things will continue to spiral out of control."
The number one solution would be to restrict the money supply and raise rates, with the former looking less likely despite a more aggressive Fed.
The U.S. central bank has already signaled a big push to try and slow inflation. This is critical because if not done, it would take years to put the genie back in the bottle, Black pointed out.
"They have to get inflation under control. If it gets out of control, it can take you a decade. It is imperative to act now — stop spending money and reduce the amount of money you circulate as a government. And they need to raise rates. That's the only tool that works."
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Also, shortages of raw materials in the near term could drive inflation down by limiting consumerism, Black added.
"There is a real risk of shortages in the short term due to exacerbated disruption to the supply chain," he said. "Supply chain disruption reduces the availability of products. And if you reduce the availability of products, you reduce consumerism, which helps steady inflation. If you can't buy it, you can't spend it. And that involuntarily restricts the flow of money. That may stabilize or at least slow the inflation rate quite dramatically."
For example, there is a serious risk around the supplies of neon gas, which is used in semiconductor manufacturing and is mainly produced by Ukraine and Russia.
Supply shortages will see consumers paying more for available things, but inflation will eventually slow with significant disruptions. "It will help temper some of that inflation. But you are in for a tough year," Black stated.
With all of this comes the inevitable — slower growth. "The economy is going to take a back seat. These factors will help slow inflation, but you will see this go into 2023," he added.
In the coming year, other potential shortages to watch out for will be in what Russia exports the most — palladium, potash, nickel, and tungsten.
"In a global world, sanctions are ineffective unless everyone signs up. And the only useful thing is to sanction commodities and raw material that Russia exports," Black noted.