SocGen Explains Why The Japanese Earthquake Shouldn't Stop Central Banks From Tightening

Asian central banks need to continue with their tightening programs because a whole new round of inflation is about to hit the region, according to Societe Generale’s Glenn Maguire.

Maguire cites four recent Asia supply china disruptions and their consequences, specifically the 1996-97 Asia Crisis, the demand spike prior to Y2K, SARS and Avian Flu, and the Iceland volcano. In each case, high demand, low inventories, and heavy order backlogs sent prices higher, for producers and consumers.

From Maguire:

We believe a pause in monetary policy normalisation is perilous. Disruptions to the Asia Supply Chain will inevitably trigger downstream inflation.

And here’s why. On the production end, Maguire points to the potential rise in China’s PPI as a result of declining inventories.Those inventories will be in decline because China can’t get key parts from Japan.


Photo: Societe Generale

Similarly, on the point of sale end in the U.S., higher backlogs due to weaker inventories in China mean the price of durable goods will rise, sending CPI higher.

Don’t miss: Citi details the 8 shocks threatening the global economy >


Photo: Societe Generale

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