The global food and commodity crisis is hitting everyone, not just developing countries, and it is really hurting at a time of slowing growth and falling confidence: a recipe for stagflation in Europe and a more miserable recession in the US.
Consumers in rich countries are being hammered by higher inflation as oil and food prices continue to rise. As a result, interest rate cuts are being postponed in Europe and the US Federal Reserve is also likely to put rate cuts on hold later this month.
And the crisis is intensifying with oil prices hitting a new record of $US114 a barrel overnight; other commodity prices on the rise (especially rice) and more moves by important food exporters to halt shipments.
Kazakhstan, the world’s fifth biggest wheat exporter, has joined Russia, Ukraine and Argentina in closing off exports, meaning that a third of the global wheat market has effectively been frozen. Australian farmers are now planting the winter wheat crop which won’t be harvested for the best part of seven to nine months.
And rice prices hit another record high (they are up 63% since January) after Indonesia stopped its farmers from selling the grain abroad. China, India, Vietnam, Cambodia, Thailand and Egypt also have formal, informal or partial bans on rice exports.
The Philippines is the world’s biggest rice importer and the US has been forced to guarantee its supplies after Indonesia, Vietnam and Thailand wouldn’t make enough grain available to meet its needs.
Corn prices also hit a record $US6.16 a bushel late last week and traded at $US6.06 a bushel overnight: up 30% in the past three months.
Higher oil and food prices were the major drivers behind a 1.1% rise in US wholesale price inflation in march, the second biggest jump in the measure’s 33 year history.
Consumer prices in France jumped 3.5% in in the year to March, while Germany hit an annual rate of 3.2%. That helped push up prices across the euro zone by a record 3.5% over the same period. And New Zealand consumer price inflation rose 3.4% in the year to March.
Economists and central banks look at so-called core inflation (with volatile energy and food costs dropped out or modified), but even that is showing worrying signs. Analysts say rising oil and food costs have to be taken into account because they are draining retail sales and other consumption (European car registrations fell 10% in March), and leading to rising levels of social unrest in Africa, Asia and parts of the Americas.
We will find that oil, food and rents are the big drivers in our 4% plus CPI when it’s released next week.
Would it be worthwhile for our elected leaders around the world to take a step back from Biofuel production, because as much as we want cheap petrol etc, food availability surely has to be a more pressing issue.
The problem is one of shortages! Last time I heard American greenbacks were useless as fertiliser.
This has nothing to do with left politics. This has to do with investors around the world looking for safe investments in the light of America’s current financial meltdown. Those investors are investing in a commodies bubble, and food and ethanol just happen to be part of that. To make matters worse, countries which have US dollar pegs are importing US inflation, which helps ensure their food prices soar. US dollar peg countries mentioned by Glenn in this article: China, Vietnam (who only just recently decided to cut loose from the US dollar peg to save themselves), and Egypt. These world-wide food pricing problems are a consequence of the US credit crisis fallout. You can thank the American government, lax US financial regulation, and American banks for this if you need someone to blame, John James.
How often have I heard the Left predicting, nay almost ‘willing’, the demise of free markets and a return to those much loved centralised economies so graphicly on display in those centres of ‘abundanc and plenty like Havanna, Harare and Hanoi.
The great strenghth of the United States is its openess and freedom. Google the preamble to the United States Constitution. Every Leftie should, especially those propounding Keynesian models of market ‘reform’.
The Green movement has been instrumental in preventing in Africa the sort of agrarian revolution that was seen on the Subcontinent 20 years beforehand. Combine this with the sort of political mismanagement of countries like Zimbabwe which had been a net exporter of food and now can’t feed itself and you begin to see the legacy that the ‘progressive’ Left has been sowing.