Home » inflation » “Bring Us Sugar!” U.S. Inflation And the Rest of the World

“Bring Us Sugar!” U.S. Inflation And the Rest of the World

by John Rubino on January 8, 2011 · 38 comments

Yesterday I set up a Google alert for “inflation,” expecting to turn up the occasional article on monetary policy and such. Instead I got deluged with stories from around the world about how rising prices are causing everything from “political pressure” to food riots.

Bank Indonesia’s Core Inflation Stance Spooks Investors, Economists

Massive selling hit the Indonesia Stock Exchange on Friday as investors balked at Bank Indonesia’s projections. Jakarta. Investors and analysts alike have offered a sour reaction to Bank Indonesia’s confidence that core inflation will not surpass 5 percent and rising food prices can be controlled.

“We’re confident core inflation will not surpass 5 percent,” said Perry Warjiyo, director of monetary policy and research at the central bank, referring to the level that would trigger policy tightening. “Rupiah appreciation can still curb inflation expectations.”

Estonian inflation rate soars to 5.7 pct

Annual inflation in Estonia reached 5.7 percent in December, the nation’s statistics agency said Friday, confirming fears that consumer prices are spiraling higher in the eurozone’s newest member.

Statistics Estonia said that goods prices jumped 7.2 percent in December 2010 compared with the same period a year earlier, with food and nonalcoholic beverages soaring 12.1 percent. In November annual inflation had been 5.3 percent.

Brazil Inflation Puts Pressure On Government

Brazil’s consumer prices ripped past the government’s target last year, confirming that one of new President Dilma Rousseff’s most urgent battles is fighting inflation. Consumer inflation, as measured by Brazil’s official IPCA, reached 5.91% in 2010, the country’s statistics agency IBGE said Friday. The pressure came mainly from food, whose prices soared 10.39% last year.

The 2010 figure was slightly above the 5.90% average forecast of 100 analysts and economists in the Brazilian Central Bank’s weekly survey Jan. 3, and notably higher than the 4.31% pace in 2009. It was the highest since 2004, when inflation hit 7.6%.

Brazil’s government has stuck zealously to 4.5% inflation target for 2010. The Central Bank’s new head, Alexandre Tombini, said Thursday the government plans to continue to pursue an annual 4.5% target for 2011, while analysts already expect 5.32%.

Inflation on the Rise in Latin America

Consumer prices are rising at a quick pace in the some of the largest economies in Latin America, complicating the task of governments that want to maintain high growth rates without sparking inflation.

On Friday, Brazil announced that consumer prices in 2010 had increased faster than the government’s targeted levels, mainly driven by higher food costs. The news is likely to weigh on the new administration of President Dilma Rousseff, who has vowed to maintain policies that have led to the country’s economic boom of the past decade in which millions of Brazilians improved their living standards.

But as she took office Jan 1, Ms Rousseff declared high inflation was a “plague” that damaged poor families, and vowed to fight it. Brazil and other Latin American economies have been able to grow with relatively low inflation rates, but higher food and energy costs around the world bring a new challenge to policy makers.

In Mexico, the region’s second largest economy, consumer prices data also leased Friday showed a higher than expected rise in December, pushing inflation for the full year to 4.4%, up from 2009 when the economy suffered a deep recession.

The Bank of Mexico said that the consumer price index rose 0.50% last month, as higher prices of cigarettes, tortillas, and limes outweighed declines in others items. Still, the Bank of Mexico said that after spiking higher in the first quarter of 2010, inflation eased on favorable produce prices and a smaller-than expected impact from last year’s increase in consumer taxes.

Peru, another fast growing economy, is also taking measures to fight inflation. The country’s Central Bank on Thursday decided to take a preventive step, increasing its reference interest rate citing dynamic domestic demand, “in a scenario of increases in the international prices for food and energy.”

Food Riots Commence As The Fed’s Loose Money Policy Leads To First Violence Of 2011

We were only partially serious when we predicted that following the just released FAO data confirming food prices have just hit an all time high, we were expecting food riots to ensue imminently. Alas, as all too often happens these days, we were right. 2011 first and certainly not last rioting comes out of Algeria, where Bernanke’s genocidal policies are first to take root. From the Associated Press: “Riots over rising food prices and chronic unemployment spiraled out from Algeria’s capital on Thursday, with youths torching government buildings and shouting “Bring us Sugar!” Police helicopters circled over Algiers, and stores closed early. Security officers blocked off streets in the tense working-class neighborhood of Bab el-Oued, near the capital’s ancient Casbah, and areas outside the city were swept up in the rampages. The U.S. Embassy issued a warning to Americans in Algeria to “remain vigilant” and avoid crowds. Riots on Wednesday night in the neighborhood saw a police station, a Renault car dealership and other buildings set ablaze. Police with tear gas fired back at stone-throwing youths through the night.” Algeria’s violence is unfortunately just the start. The big to keep an eye out on is rice. If the liquidity makes its way there, the Chinese soft landing may just become much, much harder.

BOE to Keep Stimulus on Hold Even as Inflation Concerns Persist

U.K. economists predict the Bank of England will keep its bond program and key interest rate on hold next week after above-target inflation prompted some analysts to bring forward forecasts for increases in borrowing costs.

M2 Goes Stratospheric As Liquidity Deluge Accelerates

One look at the M2 chart below shows that the reliquification of the market by the Fed is proceeding according to plan: having increased for 23 of the past 25 weeks, the M2 has hit another all time high in the final week of 2010 at $8,848 billion, a $14 billion weekly increase, and a $316 billion annual increase (we will present the M2 constituents change next week).

Some thoughts:

  • Things that seem pretty minor to Americans — like $3 gas and an extra quarter for a loaf of bread — are major problems for countries where food and fuel are dominant daily expenses.
  • Based on these reports, today’s inflation is mostly limited to food and energy, with food price spikes being due more to crazy weather than surging demand. So it’s not yet a systemic, generalized, global inflation, and bumper crops in the coming year would ease some of the pressure.
  • Still, the US is clearly exporting inflation. Because we import much of what we consume, newly created-dollars flow overseas where they pump up prices.
  • Could it be that the real limit on the Fed’s ability to inflate will be not the dollar’s exchange rate or US interest rates, but the willingness of the rest of the world to absorb all this hot money?
  • Don Gillies

    These are hardly earth-shattering numbers. And estonia just doesn’t matter, actually. I’d say that if the worst inflation worldwide is Brazil’s inflation at 6%, the world as a whole must be experiencing low inflation right now.

  • Dinakar

    Mr. Rubino might have to look towards South Asia to find double digit inflation in food and fuel prices. 19% in India and 27% in Pakistan.

    • Frank

      You might have high inflation in some of the Asian countries but we still live like kings and we have no problem finding a job if need be :)

      Jobs in Asia – http://www.pathtoasia.com/jobs

  • http://ubu.com Arigola fock

    I orginally come from sweden but parts in both NZ and trinidad/tobago. What I can say about my own home country is that business press all over the counter avoid to write the real situation. For food the prices have gone bananas since we import so much and our currency has been not so much recently but with 2008 when the centralbank of sweden lowered the interestrate down to 0.25 and its has only been changed to 1.5% to this day. We were saved by Greece making hole of EMU visible to the rest of the world and the Fed keep prining money in unseen before scale. Still they say the core inflation is below 2% when oil is to hit 100$ and raise in foodprices are at least 15%. The housing market being terribly overheated in stockholm, there is a great fear that just small drop would cause the dominos to fall. And there is a great fear that the stronger currency momentarly would cause the important export industry would to see a decline in sales which would lead to even higher unemployment. Still it seems that centralbank will continue to raise the very low rate. The problem is banks that take out a huge margin and we already see rates closing inn on 3%. I expect that during this year some sort of crash will be unavoidable. Either the almost collapse of the currency or the housing market turns south and escalate into a complete morgage crise and the banks themselves come at risk. I am investing in spanish housing market which has fallen very sharply as of late. Seems like the more safer bet.

    • fredquimby

      My parents sold out of Spain in Ocotber 2009. We now rent a place for the winter there as this is a very cheap alternative. If you have ever been to Spain, you would not say “I am investing in spanish housing market which has fallen very sharply as of late. Seems like the more safer bet.”

      The place is littered with half complete shells of housing developments, roads not finished, utilities breaking down, no street lighting, etc. etc.

      It is seriously not a good place to invest in housing at the moment. Really. Be careful my friend if you do not know this market there as I fear there is a ways to go down yet…My Dad said this about a week ago whilst I was down there (Cala de Mijas area)…

      “I wouldn’t invest in a house in Spain at the moment even if it was free”.

      • http://www.eclipsegym.com Head Coach

        “I wouldn’t invest in a house in Spain at the moment even if it was free”.

        I agree with this wholeheartedly. In fact, unless a house is:

        A) Less than 30sqm

        B) Is located on a farm (even better if near a river)

        C) Option A and in an area near business centers or schools,

        I wouldn’t touch any kind of housing unless I knew that I could rent it out at the rate of at least 12% of the cost of purchase price. Until global housing sees at least a 10:1 purchase to rent ratio, there is a long way to fall in prices to the point where governments will step in and nationalize most housing before that happens, and even then that will be an even bigger nail in the coffin for all but those who have paid off their houses before 1996.

  • Agent P

    In ‘word pictures’, John’s description could well be analogous to a ‘tsunami’ – where, at this stage the water ($U.S. exported inflation) is going ‘out’. Casual onlookers (American), might be inclined to think that the jawboning about deflation (continued housing market trouble/unemployment, etc.) via the Fed/Treasury/dutiful press, makes all this ‘inflation’ talk seem unimportant – or even, downright backwards – even asinine perhaps.

    We are not and will not be immune to what these other countries are experiencing, in large part as a result of our policies here at home. Peter Schiff (and many others – from way back) were in fact, ‘Right’. We will have the worst of both worlds in due course – persistent high (and rising) unemployment, along with high costs for the things that matter – food & energy.

    One may ride deflationary ‘definitions’ all the way down – and ‘technically’ be right, as there are always statistics available to support one’s position – no matter the realities going on all around him – namely, falling home/asset prices and ‘de-leveraging’, but falling prices on fixed assets mean little when governments decide not to obey the laws of physics regarding sound economic policy. This is not to say that the final de-leveraging won’t take place – it will indeed, but NOT before corrupt governments follow the path that they all do – Especially today, in a society of Highly (government-funded promises) dependent individuals and corporate interests in maintaining the status quo.

    As many others have submitted: This is not going to end nicely.

  • Tuco

    You wanna shoot? Then shoot, don’ talk.

  • Brad Thrasher

    Considering that the USA is the world’s grocery store food inflation should benefit us, no?

  • John Phillips

    Closer to home. Here in the USA inflation is obvious to the common Joe and Jane. The consensus here in the office and among friends is that inflation is definitely here. Sure gas, but milk, bread, building materials, and of course my staple….excellent micro brews. The brews have gone from $7.99 to $9.99 a six pack in one year! If the item or goods or service is not out and out priced higher, then you’re actually receiving less quantity or quality for the same price. There simply is no debate here!

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  • http://www.eclipsegym.com Head Coach

    I live in the Philippines as an expat and witnessed various food protests (never got the riot stage) as well as protests over the price of fuel. It turned out that much of the price of rice was political, as admitted by the new president who entered office this year during his state of the nation address when accounting for millions of tons of rice sitting in warehouses that sat to rot during the protests, not to mention electricity prices that were pushed down due to political pressure from incumbent politicians. We’ve also recently had a budget surplus this year with the President focusing on paying off the national debt with a zero sum budget mandate.

    I think that many of the emerging markets have realized that they need to distance themselves from the policies of the Fed as much as possible. Luckily for the economy here, most of the people are agrarian or at least have relatives who are so should the SHTF.

    • Kirk Betz

      I too would love to be an expat living in the Philippines as I have a girlfriend there in Tagum City. The dollar melt-down here is frightening, and escape seems to be the most prudent option. By the way, your fitness site is intriguing too; I’m trying to “ease in” to vegetarain/vegan habits. Hope to establish an ongoing dialogue with you!

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  • Bruce C.

    The main theme that struck me as I read this was the consistency of all the country’s central banks in underestimating their respective inflation levels. Maybe all central banks discount food and energy prices like our Fed does.

    Food prices are increasing the most due to both supply limitations due to weather events and currency devaluations caused by attempts to maintain relative value to the weakening dollar. It’s going to be interesting to see what breaks first. I don’t think the Fed will be able to stop its QE this summer, lest interest rates rise, and yet other economies will have to decide to either stop chasing the dollar down and thus export less, or keep on devaluing their own currencies. Either way, the poorer you are the worst it will be.

  • gold bug

    The reason food and energy is going up is because we all must buy them. Next everything else will follow and rise in price. Let us blame the 535 people on DC, who love to tell us that they are the smartest people in the world, the 535 people in DC are soley to blame for this having caused all this INFLATION with their huge spending, and allowing the FEderal Reserve to go on having such low interest rates. REturn to a gold standard America! before it is too late, if it is not already. It is the only way we can stop the theives in DC from stealing our wealth through inflation.

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  • stumbler

    May I take polite issue with Brad Thrasher’s comment: ‘Considering that the USA is the world’s grocery store food inflation should benefit us, no?’

    Brad, rising food prices will benefit the land owners who’s debts are denominated in nominal dollars, but it certainly won’t benefit everyone else. The rest will have to pay the extra cost of their food bill, which will leave them less to service their already unserviceable debts. This means less money to be spent on other goods, which will force more people out of work.

    We have an odd system, in that the people in the city demand cheap bread and milk, but by doing so they impoverish the farmers who provide the stuff we need to stay alive. When circumstances change to benefit the farmer, people complain!

    There was always going to be a price to be paid for all that consumption. The bill is coming due, time to be grown ups and own up to our (ir)responsibilities.

  • Brad Thrasher

    G’day stumbler,

    Those people to whom you refer are the brokers, packagers, distributors and financiers who have traditionally always squeezed the producers.

    I am equally fond of your romanticized but antiquated image of the modern farmer. More often than not the family farm is now owned by a legal person who’s name ends in LLC, Inc or Ltd. and is managed by a hayseed appearing city slicker with advanced degrees in business and agriculture.

    Still, I respectfully submit that your polite issue with my premise missed the mark. You are referencing micro issues while I was addressing macro issues. My bad. I should have communicated it more thoroughly. Perhaps I should have addressed the potentiaol impact of food inflation on the trade deficit and the balance of payments.

    Kind of like, excuse the pun, arguing apples and oranges.

    All the best,

    • Stumbler

      Good morning Brad,

      Well, the macro issue is interesting. There is no doubt that any nation will enjoy a positive boost to its exports if the price of those exports rise. Especially, in a commodity like food that people need to buy just to stay alive, no matter what the price. Further, the trade balance will also be positively affected by the fall in imports due to the impoverishment of the domestic population! However, we must consider if this is a case of absolute benefit or just comparative benefit.

      If the world including the US is poorer for higher food prices then everyone will be buying less stuff. I tend to refer to wealth as the stuff that keeps us alive, and riches as everything else. Using this definition, to maintain our wealth (and health) we will have to cut back on our riches. I have no idea what the feedback loops are in global trade, there are simply too many variables, not to mention tariffs, but I suspect that eventually any rise in food prices will prove to be just a comparative advantage, not an absolute one.

      However, in the screwed up manipulated world we live in, a comparative advantage might well be a huge advantage in that debt markets are only interested in comparisons. We all know that almost every nation on earth has borrowed more money than it will ever be able to pay off, and certainly in real money. So the comparative advantage of a falling US trade deficit might give American politicians more leeway to spend more and delay execution day, without printing quite so much.

      I doubt we’ll have much need for debate about the following thought: with policies that force food to be burned in cars, and now interest from the airline business to run on biofuel, food is not going to get any cheaper on a long-term basis. The American way of life is not up for debate, and if that means burning food, the rest of the world will just have to starve. This week in Tunisia we’ve had the first food revolution. Four missed meals is all it takes. I suspect we can expect more.

      Happy days


  • http://thelibertarianblogs.com Jason

    This was an awesome overview of what’s going on around the world in a quick snap shot. I’m hoping this is moderated because I’d like to ask the author for permission to link his site with mine and also to mention him on my blogtalk radio show http://www.blogtalkradio.com/harygarfield. Although I blog, this is still a great format and I’ve been comming here for about a week and I like what you have to offer.

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  • Gypsy

    “and you tell me, over and over again my friend, you don’t believe were on the eve of destruction”….. Barry McGuire

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  • germanliberal

    there is a message to all of you goldmans, buffets and rockewfellows: if the world looses its patience you´ll loose your heads!

  • http://www.manhattancalumet.com james moylan

    I have a web site where I research stocks under five dollars. believe or not I think it would be a good thing if the credit rating of the united states was down graded. this would finally force are lawmakers to do something dramatic about the deficit and the national dept.

  • Chris

    Inflation is bad for almost everyone except the very rich. Deflation is good for majority as the money will buy more. With deflation, the economy will start from a lower base and will allow for stronger growth. This inflationary environment is slow death for the economy and bad for most of us but good for the moneymen in Wall street.

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  • Makati1

    Real, life necessities Inflation in the US is well past 7% per year…meaning that in 2020 prices will be twice what they are now. (Rule of 72) However…as most wages are shrinking in real terms…IF you are lucky enough to have a job. Where does the down of income meet the up of necessities and the explosion happen? 2012? 2016? 2018? or 2020? Wait and see… BTW: How do you buy a home with a 30 year mortgage with today’s job insecurity? I don’t see this condition changing any time soon. When all of the homes are repossessed, will we be a nation of renters, giving all of our labor to the masters who own us?

  • mike22

    Absolutely agree to following sentence:
    “real limit on the Fed’s ability to inflate will be not the dollar’s exchange rate or US interest rates, but the willingness of the rest of the world to absorb all this hot money.”
    As you will see in the next few years (if not months) the BRIC and Europe are going to install a world currency basket to stop their dollar-imported-inflation and increasing sales of wealth and property to american (and other) speculators. The Fed is already under extreme observance worldwide and whatever it does will take affect on the american bond market. I wouldn´t wonder if sooner or later it had to buy all US bonds itsself just because everybody else was dropping them.

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