Energy, raw materials, food, when everything becomes more expensive, there will be a lot of losers, but there will also be some big winners. More importantly, powerful companies benefit from inflation, as do property owners and its initiators.
Source| Wirtschafts Woche
A worn-out briefcase was in the corner, an old-fashioned typewriter was placed on a shelf, and on the table was a stack of checkered paper and several magazines and periodicals of The Historical Office Environment. The office space on the first floor of the new Aldi North headquarters in Esenkle, Germany, looks like a nostalgic space. The antique atmosphere contrasts sharply with the modern co-working atmosphere popular in the city. In fact, this is a copy of the former office of founder Theo Albert. Together with his brother Carl, he unearthed the concept of so-called "discounts" and built Aldi into a global company.
Aldi's biggest competitor is Lidl, and in the fierce competition, it can be said that Lidl has been the forefront since 1973. Another company, DM, also started its pharmacy business in the same year, a year after Roßmann opened the first shop named after him that focused on toothpaste, shower gel and toilet paper. One of the reasons for the success of this series of price-sensitive chains: high inflation. The oil and food price shocks of the 1970s led to soaring consumer prices, and even high-income earners suddenly had to start saving, and it was then that the benefits of discount stores were discovered.
A young man shops at a discount store
Today's situation is no different than in the past. In recent years, traditional supermarkets such as Rewe and Edeka have pulled back a city with a wider range of options and taken back market share from Aldi and Lidl. However, the pendulum is swinging back. The spread of the new crown virus and the Russo-Ukrainian war are pushing up prices, and the inflation rate is currently 7.3%, which can be said to be eating away at the disposable income of ordinary people. According to a McKinsey survey, 44 percent of Germans plan to save more on groceries, compared with 55 percent among low-income households. The company's consultants said that the sensitivity of Germans to price compared to 2021 can be said to be "loud and clear".
Inflation is like a vicious poison, like an acidic liquid, which not only leaves a hole in people's wallets, but also destroys the bonds of modern society. If the value of money goes up and down like a roller coaster, then money loses its most important credibility, and the social prosperity and wealth we have will be lost. What's even more frightening is that we also lose our sense of security and confidence in our future lives. From this point of view, currency depreciation is also self-depreciation because it deprives us of a normal and stable life. From then on, the world began to shake, nothing was certain, we just felt lost, because we realized that even all the money in the world together could not bring the world together.
However, there are also winners in this case: those who speculate from inflation, those who profit from inflation, those who push up prices. Discount stores are one of them because they prove their worth from customers' parched wallets; luxury brands can use their market position and pricing power to make high profits; the logistics industry can directly drive up prices; there are gold traders who can meet the need for stability; real estate developers can once again enjoy the joy of seeing their apartments and homes appreciate; and of course, debtors, especially some countries, can be thankful that their debt is shrinking faster than expected. For all of them, inflation may not be a stroke of luck, but an opportunity, or a very good trading opportunity.
For example, many of Klaus-Michael Curry's assets have not depreciated in these weeks, or rather the billionaire is making money from rising prices, especially logistics. As shipping prices continue to rise, the majority shareholders of the shipping agency he operates, Dexun, may now be richer.
Shipping group Hapag-Lloyd will pay dividends at the end of May. Curry joined the company during the 2008 financial crisis and now holds a 30 percent stake. However, since Hapag-Lloyd has just released its best financial report in history: a profit of more than 1.8 billion euros (9 times higher than the previous year's net profit), and The Curry will also receive a record dividend. According to the company's profit distribution plan: the shareholders of the Dexun Group received about 1.2 billion euros, more than half of which belonged to the company and fund controlled by Klaus Michael Koone.
Container shipping has been in short supply since the COVID-19 pandemic
Many wonder if service companies like Library deserve such a handsome return. In recent years, shipowners and freight forwarders do not seem to have cross-era innovation and superior management. Or rather, on the contrary, container ships have been in default for a long time and have been overbooked, and the service is not satisfactory. However, prices in the industry have been getting higher lately. The new motto of the shipping world has even become: Lie down and make money. The main reason for this is that people were forced to shop online and work from home during the CORONAVIRUS pandemic, so there was a surge in demand for the transportation of wooden tables and home steppers, most of which were imported from the Far East, but there were not enough ships to transport all the containers. In addition, due to the closure of the port, shipping vessels cannot enter and exit, and the delivery date can only be postponed continuously.
The remedy for the transport industry is simple and crude: raising prices and increasing fees. Because the demand side not only did not decline during the supply bottleneck period, but became more and more exuberant. Hapag-Lloyd also expects "moderate growth in traffic and average freight rates" in 2022. Whether it's the rising cost of fuel or the rise in ship rentals, none of this is a problem for Hapag-Lloyd. And their main investor, Klaus Michael Koone, is even more "moneyy", a bit like the King of Inflation in Germany.
According to Manager Magazine, Kune is now ranked third on Germany's rich list: he is said to have assets of 33 billion euros last year, 20 billion euros more than before the outbreak. By the way, Curry himself considers this development to be "terrible" and "unhealthy". He is now looking to reap the benefits in other ways: He bought Shares of Lufthansa for around 420 million euros, making himself the airline's second-largest shareholder.
The curry example shows that there are not only average winners in inflation, but also very special winners. Due to fiscal stimulus and monetary deflation triggered by a series of crises, they can benefit from unique supply shocks and excess liquidity during special periods.
At the same time, inflation spread like a fire. Bread, vegetables, gas, heating, hairdressers and car rental costs that people have to empty their pockets to pay for.
There is no end in sight to the wave of inflation. German economists predict that euro zone CPI will rise by 6% year-on-year this year. And the longer inflation persists, the greater the concern among ordinary people and businessmen about the risks it could pose.
Unions then strike for higher wages, consumers buy products in advance, and companies and landlords take inflation into account current prices and rents. Price increases can ultimately only be solved by monetary brakes and stabilizing the economy.
But the ECB is unlikely to have the courage to do so. Jog Kramer, chief economist at Commerzbank, said the ECB would "not tighten monetary policy sufficiently" for the sake of protecting the eurozone's highly indebted countries. As a result, inflation is likely to exceed the ECB's target of 2% for many years to come.
This has far-reaching implications for the economy and society, because inflation inherently means redistribution. Currency depreciation divides society into winners and losers, compensating the seller at the expense of the buyer, relieving the debtor at the expense of the creditor, and rewarding the cunning at the expense of the honest.
According to the Austrian economist Ludwig von Mises (1881-1973), inflation would lead to "a major shift in wealth and income," shake "monetary accounting" and potentially "destroy the entire precision production process based on the division of labor."