Inflation has caught us

These two weeks, the news topic which I come across most often is inflation. The situation is turning bad now.

US inflation hit 14 month high, driven by higher fuel cost. The falling US dollar cause the imported good and oil price to go higher. By right, to curb the inflation, Fed should increase the interest rate. But, given the current subprime problem, they are likely to cut the interest rate instead. This could give rise to faster inflation which threaten the economy. I really hope US won't end up in recession but only to slow down.

In China, situation is no better. Inflation has picking up, driven by the food price increases. A very good example is the pork price, which has increased a lot. Consumer price index rose 6.5% in Oct. The economy remains red hot and further cooling is needed.

Singapore's inflation is targeted to hit 5% next year, driven by the housing cost increase. The economy is doing very well. We see tight labour market, congested road and rising rent. The wage has increased, but the cost has gone up quite significantly also. In fact, the whole Asia's inflation has picked up some what.

These two years of fast economy growth in the region, has increased the demand for commodity like soy bean and oil. Low interest rate also contribute to the excess liquidity which flowing through Asia and prop up the asset price. We really need a global slow down to cool the fast rising price.

I think we are at the critical juncture now. If the thing is not managed properly - subprime, oil price, interest rate, inflation. We would have more surprises ahead. It is now inappropriate to risk more capital in the market. Because if the liquidity dried up, asset price could fall a lot. Better if the picture could become clearer. Consider to invest only on fundamental solid company with strong cashflow to weather the storm. Cheaper price could go cheaper, buy/trade with care. Having said that, of course, the best time to buy is when the stock is down.