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PARIS: A resurgence in worldwide inflation in the past several
months has been principally powered by rises in the price of food
and energy, exacerbated by galloping demand in fast-growing emerging
markets.
While grain prices have exploded, crude oil is
now above $100 a barrel—trends that weigh heavily on nearly all
the world’s economies and on consumer-purchasing power.
The price rises reflect potent demand in
emerging market nations, where surging economic momentum requires
more and more basic commodities to meet production targets and to
satisfy desires of better-paid workers and consumers.
Worldwide supply, hampered by constraints on
resources and production capacities, is struggling to meet growing
demand, sparking tension on international markets and a rise in
prices.
Inflation records are beginning to be set around
the world, slashing hard-won household-purchasing power.
Price-induced friction is particularly acute in
the developing world, where families must now allocate most of their
earnings just to buy food and fuel.
Violent, and sometimes deadly, demonstrations
have broken out in several African nations against the rising cost
of living.
The World Bank has warned that sharply higher
import bills could expose 33 countries to political and social
unrest.
“We need a new deal for global food policy,”
World Bank President Robert Zoellick said in a recent speech to a
Washington think-tank.
He urged countries to provide the minimum $500
million immediately sought by the World Food Program (WFP) to face
the mounting food crisis.
But developed nations, themselves threatened by
inflation, have but limited room to maneuver.
The head of the European Central Bank,
Jean-Claude Trichet, has said price stability is critical for the
poorest and most vulnerable residents of the 15-nation Eurozone.
‘We need a New Deal for global food
policy’
The European Central Bank has been pursuing a
tight monetary policy, declining to lower interest rates because of
the threat of inflationary pressure. But the institution must also
grapple with slowing Eurozone growth in the current atmosphere of
international financial market instability.
Higher prices can erode consumer spending, one
of the motors of economic growth, and can trigger a reduction in
savings. In addition, governments face growing agitation for higher
wages from strapped workers, pressure that can in turn intensify
inflation threats.
In general, significant inflation complicates
planning by individuals, business and governments because of the
extra difficulty in judging future values and risk.
Consequently it increases the costs of carrying
out transactions and is a disincentive to investment.
Experience shows that when inflation takes hold,
consumers and businesses begin to anticipate future price increases,
thereby accelerating the underlying inflationary pressures.
In advanced countries, this psychological effect
tends to emerge once inflation rises above 2 percent. That is one
reason why the European Central Bank has set its upper target
ceiling for Eurozone inflation at just under this figure.
Monetary authorities fear in particular an
“inflationary spiral” that could have its start in emerging
nations, the current drivers of the world economy and where
governments tend to favor growth over the fight against inflation.
Chinese Prime Minister Wen Jibao said recently,
“Number one, we need to ensure the fast yet steady economic
development in the country, and at the same time, we need to
effectively hold down inflation.”
Chinese inflation came in at 8.7 percent in
February, although the government has set a 2008 target of 4.8
percent.
If the Chinese anti-inflation drive does not
bear fruit, salaries will rise, leading to an increase in the price
of Chinese consumer goods exported the world over.
It will also signify the spread of inflation
from emerging markets to the wider world economy.
-- AFP
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