This week in charts
Mortgage payments
Food costs and interest rates rise as energy and fertilizer supplies are hit by the invasion
As industry body Fertilizers Europe has warned:
“The European fertilizer industry faces an unprecedented crisis with gas prices soaring over 1000% from levels a year ago.”
“It is in full-fledged crisis because the European gas market is bust. The record high prices of natural gas, which represent 90% of industry’s variable production costs, makes it impossible for European producers to compete. As a result, over 70% of European production capacity has been curtailed.”
And as the World Bank and IMF have highlighted, there is a growing risk that famine will spread across parts of Africa and Asia.
It’s going to be a very difficult winter. Most of the world will be impacted as Europe bids up energy/food prices to keep its people warm and fed. And it would never have happened if policymakers had recognised the importance of geopolitics, energy markets and demographics.
Indonesia’s unexpected success story
In 2013 the US investment bank Morgan Stanley dubbed Indonesia as one of the “fragile five”, a group of emerging economies that it believed were especially vulnerable to a jump in interest rates in the US. Almost a decade later, US interest rates are rising sharply, which is adding to the economic problems in the developing world. But Indonesia appears unruffled.
At a time when the global economy is being battered by the war in Ukraine and the global energy, food and climate crises, Indonesia has emerged as an unlikely outlier, boasting both a booming economy and period of political stability. Gross domestic product expanded 5.4 per cent year on year in the second quarter, well above forecasts. The country’s inflation rate of 4.7 per cent in August, prior to a recent petrol subsidy cut, is one of the lowest globally. Its currency, the rupiah, is among the best performing in Asia this year and its stock market is hitting record highs. The resource-rich archipelago, south-east Asia’s largest country with 276mn people, is riding high on soaring commodity prices. Exports rose 30.2 per cent year on year to $27.9bn last month, the most on record. The world’s largest producer of nickel, a critical component in electric vehicle batteries, Indonesia is putting in place plans to benefit from the upcoming boom in EVs.
Much of the credit for this boom has gone to President Joko Widodo, who has managed to maintain popularity with both ordinary Indonesians and investors alike after eight years in power. A poll released this week by research firm Indikator Politik Indonesia showed 62.6 per cent of Indonesians approved of the charismatic former furniture salesman’s performance, down about 10 percentage points since before the fuel subsidies were cut but still leaving him as one of the world’s most popular democratic leaders.
Construction industry struggles to meet unprecedented building cost inflation
Two years ago, Orion Construction started work on a 430,000-square-foot warehouse in Surrey, B.C. By 2021, construction costs had risen so much that its bid for a second, similar-sized building in the same area was 20 per cent higher. “If we had to bid for a similar project today, it would be 25 to 30 per cent higher [than in 2020],” says Josh Gaglardi, principal and founder of the Langley, B.C.-based design-build company. As costs of materials, labour, fuel and financing have soared in the past two years, he’s had to come up with creative strategies to stay profitable.
Because construction contracts are fixed price and there is typically only a small contingency margin, “any cost increases are generally on us, so we have to be very creative and pro-active, hedging costs where we can,” Mr. Gaglardi says. It’s a Canada-wide challenge as industrial building construction has seen unprecedented cost inflation since the start of the pandemic, says Susan Thompson, associate director of research for Colliers International Inc. in Vancouver. “As interest rates rise, there’s the potential for an inflection point that could see developers hit pause,” she says. “A lot of developers are carefully thinking through the facts before they go into the ground because they want to make sure they can cover their costs.”
But a pause may not happen soon. “The industrial market is still just blisteringly hot,” she adds. So far, the low vacancy rates in Vancouver, Toronto, Montreal and Calgary have meant developers can cover the excess costs by just raising rents and still have buyers.
Meanwhile, buyers are willing to pay more. Industrial and warehousing lease rates are expected to continue moving up because of pent-up demand and a potential shift of owner-occupied spaces to rental properties, commercial real estate firm JLL predicts in its recently released Q2 2022 Canadian Real Estate Outlook.
This week’s fun finds
How to Design the Perfect Queue, According to Crowd Science
Designing the perfect queue is no easy task—and the mass of people snaking through London is no ordinary queue. But help is at hand—from the behavioral science of queue theory to tricks of the trade more commonly used at theme parks, it’s possible to keep hundreds of thousands of people in order. Especially when most of them are Brits—a people famed for their ability to stand obediently in line.
“The perfect queue is one that doesn’t take longer than 10 minutes,” says Eric Kant, founder of Phase01 Crowd Management, a Dutch company that manages events—including long lines. (A 2017 study from University College London suggests that Brits get antsy when they wait longer than 5 minutes 45 seconds.) “From this perspective, it is not a perfect queue,” says Kant. But it is a well-prepared one, with meticulous planning, pinpoint precision, and wild logistics. In short, it’s a queue fit for a queen.
At its peak, the queue has snaked 5 miles across the capital, with an estimated 14-hour wait. When it reached capacity and closed on Friday, people defied government advice and formed a separate queue for the queue.
Designing the perfect queue then involves looking at two variables: how quickly people join the end of the line (the arrival rate) and how quickly they get through it (the service rate), says Still. The arrival rate is dictated by the capacity of London Underground and the mainline rail network. The service rate is trickier to calculate, because it depends on how quickly people pass by the queen’s coffin. Different people choose to mark their respect in different ways, which can take different lengths of time. One person’s quick walk past with a glance to the side is another person’s pause for reflection. Ideally, you want to ensure the service rate is equal to or greater than the arrival rate—if it isn’t, then the queue will grow.
There’s a significant amount of math and formulas that has been written about this over the years,” says Still, “but that doesn’t take into account psychology.” There are both positive and negative elements at play when it comes to the psyche of this particular queue. Almost no one within it will ever have waited as long for something in their lives, meaning they could quickly become frustrated.
But for die-hard royal fans determined to pay their respect, there’s another risk. “One of the concerns that has always been foremost is that if people are standing for 20 hours, then they may push themselves beyond their limits,” says Still. Three hundred people in line have been given medical assistance, with 17 taken to nearby hospitals, according to the London Ambulance Service.
If you read this on a smartphone, you’re probably not going to understand it
People wonder from time to time whether there is a difference if you read something on a smartphone, as we all do increasingly often, or if you read the same text on paper. Well, a group of researchers decided to do something about it and conducted experiments, where they asked 34 persons to read an excerpt from a novel, once on a smartphone and another time on paper. After the participants had read the excerpt, they were asked a couple of comprehension questions about the text. But to make things fun and interesting, the researchers also measured how often participants sighed, their breathing in general, and their brain activity in the forehead.
They found that people who read the excerpt on paper sighed more often than people who read the excerpt on a smartphone, possibly because of a feeling of general superiority over the poor fellows who can’t even put their smartphones aside during an important academic research experiment. Unfortunately, that’s not quite correct. People who read the text on paper sighed more often because they were adjusting their breathing and their mental focus.
Participants who read the text on a smartphone were mentally busier, with their forehead heating up more, indicating more intense blood flow and increased activity in this area of the brain. The frontal cortex is the location in the brain that makes sense of complex tasks and is involved in things like logical thinking and other higher cognitive functions. So, the people who read the text on a smartphone were more involved and understood more of the content. Wrong.
Reading texts on a smartphone requires more concentration and is harder for your brain because the text comes along with more distracting features like the blue light emitted by the smartphone. This makes it harder to just read the text and the brain must work overtime to digest all the different stimuli. Thus, people are not concentrating as much on the content itself and as a result, have a worse understanding of the content of the text than people who read the same text on paper.
Indeed, the people who read a text on paper can expend more of their mental resources on the content of the text and introspection. This introspection subconsciously allows them to realise when they are losing focus. Taking a sigh and readjusting their breathing then helps to re-focus. People who read a text on a smartphone didn’t do that as often because they were simply too busy to listen to their bodies, so to say.
