Global Inflation Soaring, Essential Food Prices Rise To Record High

By ETHAN Markoff

In a figurative language, inflation resemblances a pregnant woman as the adage says, 'having a little bit of inflation is like being a little bit pregnant.' It seems in the economic sector the adage holds water as the global food prices rise 4.4 percent to a record by the end of the year, increasing the demand of essential commodities like meat, oilseeds, grains, oils etc. In Europe inflation is still lower than U.S and Asia, running at 3.1%, though in its fastest pace since euro currency began circulating. China, the rapid developing country in the world, suffering from a high inflation temperature, driving at 6.9%, the highest in 11 years.

Food Price Index of the United Nation climbs to 240 points from 229.84 last month, which is certainly a concern for economists. In a recent study revealed by Goldman Sachs, global inflation has accelerated in 80% of the countries, and rose two percentage since November last year.

However, history says, this is all small beer. Even inflation at the rate of 5% could hardly affect on double-digit price rise, which was witnessed in the 1970s when the rich countries terrified by the sudden increase of food prices. It is not surprising that in even late 90s, the average inflation rate in poor nations was 50%!

Nevertheless, the upswing has posed significant questions such as weak retail sales, joblessness and American recession. Some analysts believe that the inflation is stagnated and heading for stagflation-lite.

Now, a question that raises eyebrows of some curious 'economical minds' is whether the rising inflation creates a pressure even as economic slow. In the recent times, due to concern over inflation, Beijing has kept tightening monetary policy and as a result it further raises concern over the recovery in the global economy, which is already slow. Inflation is a monetary phenomenon and primarily responsibility of central banks. The cheap price of Chinese goods may be abating and at the same time increasing demand for resources causes commodity prices higher.

There is partial truth in all those reasons and explanations. For example, in Gulf countries monetary laxness causes inflation and in China different aspects of social unrest have made the inflation soaring. The Chinese government has made several efforts to curb the increasing price of essential commodities. In last one year, China has considerably accumulated foreign-exchange reserves that has ignited domestic money growth and as a result, the inflation is tripled in last one year. National Development and Reform Commission (NDRC), China's planning body created much furor, telling people to avoid price rises by frying noodles in cheaper oil.

It is believed that American imports from China in the recent years exponentially increased because of Chinese production cost, but the reality is, it has more because of weakness of the dollar rather than cheap Chinese products. And the situation is now like this, if the China increase the price rise of its products, it would still dampen inflation in developed nations.

Now, the economy is globalized and mostly governed by the emerging economic states like China and India, who are more energetic and commodity intensive. From last one decade, China is responsible for about half of the increase in the world's demand for metals, and two-fifths of oil demand in the world.

There are other reasons for global inflation - a much overlooked one is the social unrest in northern Africa and the Middle East that have witnessed toppled thrones in Egypt and Tunisia. The incidents also caused 44 million people into poverty in the past year. Because of a long time gap of production process by the farmers, consumers have to pay more for essential commodities.

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* Illustration courtesy to Satoshi Kambayashi