A grim warning from the International Monetary Fund about the dangers of food price inflation has been amplified by figures showing two of the major economies in Asia, Japan and India, are battling the highest cost pressures for a decade or more.
And we will be reminded later this week that China, the most important economy in the world at the moment, faces a still enormous cost pressure when its inflation figures for March are released, along with trade and sales figures for the economy as a whole
Speaking in Washington, IMF Managing Director Dominique Strauss-Kahn said further rises in food prices would be "terrible” for the world’s poor and throw hundreds of thousands of them into starvation,
According to the United Nations and the World Bank warns, civil disturbances may be triggered in 33 countries as governments in Asia, Africa the Middle East and Caribbean try to control surging food costs and avoid social unrest by curbing exports or lifting import duties on basic food staples such as rice, edible oils, wheat, cement, steel, maize and the like.
According to World Bank figures, global food prices were 57% higher in March than in the same month of 2007.
Strauss-Khan told the media at the IMF/World Bank meetings in Washington that if food inflation keeps accelerating at its current rate "the consequences will be terrible.” with hundreds of thousands of people will be starving, leading to a disruption in the economic environment.”
In the latest example, Haiti’s Prime Minister Jacque Edouard Alexis was removed from office by the impoverished Caribbean country’s Senate on the weekend for his claimed failure to control food prices which have led to riots and civil unrest.
The IMF estimated last week in its World Economic Outlook that consumer-price inflation in poor or so-called developing countries will rise to 7.4% this year, compared to January’s already high estimate of 6.4%.
The World Bank reckons food prices could remain high for the next seven years.
World rice prices have risen 96% and more for some types, in the past year, with most of that rise coming in the past month as major exporters, including China, Egypt, Vietnam and India, which export more than a third of the world’s rice, to cut shipments of the grain to allow adequate national stocks to be maintained. The Philippines is running short and can’t buy enough rice on world markets, and the US has promised that it will ensure that the country doesn’t run short. Argentina and Russia have also sought to discourage food exports in a bid to boost domestic supplies; it’s a political problem in Mexico and Italy with the high price of corn (maize) and wheat hitting basic food costs.
Late last week Japan reported that its wholesale prices rose at the fastest pace in 17 years as they hit an annual growth rate of 3.9% in March.
And India revealed its troubling level of price pressure has deepened with the worst figures for nearly three and a half years.
In both cases higher oil and energy prices, plus the surging cost of food, such as rice, meat, wheat and edible oils, are making for a powerful and dangerous mix for two respective governments facing political pressures and possible elections in the not too distant future.
Japan’s producer prices climbed 3.9% last month March 2007, after a revised 3.6%, according to figures issued by the Bank of Japan.
And it is going to get a lot worse with steel power, cement and other coal users starting to reach agreement with foreign suppliers of coking and thermal coal that will boost prices by up to 300% in some cases (or more than $US300 a tonne for hard coking coal from Queensland).
The higher energy and raw-material costs threaten profits at a growing range of companies, with knock-on effects across the wider economy as energy prices rise, and the cost of steel is passed on to major consumers like cars, whitegood makers, the construction, shipbuilding and their suppliers.
Japanese machinery orders fell in February, confidence among Japan’s largest manufacturers dropped to a four-year low and production declined for a second month.
The Bank of Japan also issued figures last week showing that prices of often-purchased goods such as bread and milk climbed 2.5% in March. The government raised wheat prices 30$ at the start of the month.
Japan’s core consumer price index, which excludes fruit, fish and vegetables, climbed 1%, a decade high. But excluding oil, and the food items, it fell, pointing to how deflation is still lurking in the economy. But the upward pressure from the higher costs of steel and other metals, plus the higher charges for electricity, gas and other essentials, will start appearing in the CPI in coming months.
The yen may have risen 10% against the greenback, cutting some of the impact of higher costs by making imports cheaper: but it will not able to stop the shock of the higher raw material costs, or the 70% rise in world oil prices in the past year or so.
India’s inflation accelerated to 7.41% in the week ended March 29, the quickest in more than three years, industrial production grew at the fastest pace in four months in February thanks to high levels of demand from the growing number of power plants and factories boosted demand for electricity and cement.
Production at factories, utilities and mines rose 8.6% after a revised 5.8% rise in January.
Manufacturing, which accounts for the vast majority of India’s industrial production, gained 8.6% in February from a year ago; electricity output rose 9.8% and mining rose 7.5%.
Concern over the impact of a slowdown in global demand on the Indian economy sees a 22% fall in the Bombay Stock Exchange’s benchmark Sensitive Index.
But it’s the inflation pressures which are the concern.
The Government has been battling surging wheat, rice and edible oil prices: it has
