Market very concerned about the European debt crisis and the current issues with Ireland have brought this back to the fore recently. Also the big concern for equity markets is China lifting rates to limit inflation. This could put the brakes on this fast growing economy and perception that this could slow down industry which will flow all the way from raw materials : commodity prices all the way to the shop floor like the car manufacturers . This could end the bull market party for a little while.
Might seem a bit trivial but Mcdonalds in China (1200 stores currently) has just raised it's prices across the board including Big Mac prices (.5 to 1 yuan) due to a rise in raw material costs. The Economists Big Mac index says that China’s Big Mac’s are still the cheapest in the world on average, the prices are $2.18 in China, while the average cost is $3.71 in the U.S. and the most expensive is $6.78 in Switzerland. My guess is from my last visit with the kids, that we are much closer to Switzerland than China.
Food prices have moved up sharply recently so some of these growing economies like ours may have to lift rates to head off inflation. Having read extensively about this commodity booms recently inflation can become rampant in these booms and usually lags the boom by 2 quarters.
It’s very odd at the moment, economies like Australia and China want to stop inflation occurring while economies on their knees like Europe and the U.S. are trying everything to avoid deflation, so any inflation for them will be perceived well, so further moves by governments to suit each economy are
likely.
