THE RAGING FIRE OF GLOBAL INFLATION
THE GLOBAL SCENARIO
SHAMSUL GHANI (email@example.com)
Mar 24 - 30, 2008
The relentless forces of inflation have ravaged the global territories with a vicious onslaught. The US is faced with the worst inflation during the last seventeen years. During the month of March, 2008, the producer prices increased by 1.1 per cent there pushing the last year's increase of 6.9 per cent to 10.2 per cent in the current year on an annualized basis. With crude oil prices hovering around $115 per barrel, the energy prices in US have increased by 20.4 per cent as compared to the last year. Gasoline is up by 36.4 per cent while heating oil is up by 52 per cent.
China's inflation hit the 12-year high level of 8.7 per cent in February, 2008. In order to control its domestic inflation, China has decided to build sizeable reserves of Soya oil, soybean and palm oil. This will send the international prices of these items further up India, who had managed to keep its inflation under 4 per cent during last so many years, is seen staring at a record high rate of 7.4 per cent. Although it has taken some hurriedly planned measures like slapping of export ban on non-basmati rice and pulses, huge cut in import duties on food items, it is still smarting from the inflationary fallout. Some more economic and fiscal measures to control the situation are on the card there. Besides India, Vietnam and Indonesia have also clamped ban on rice export to control inflation by improving domestic supply position.
The world financial organizations have set the alarm bells on to sound warnings of an impending food crisis. They have decided to substantially increase the credit and grant allocations for the poor African, Latin American and Asian countries to enable them to improve their food situation. The alarming scenario has made the cash rich nations to develop food stockpiles exposing the poorer nations to a severe food shortage risk. The increasing demand from China and India triggered by their huge size of population, keeps the world food markets going with prices maintaining their northwards course. The world food reserves are touching an alarmingly low mark. The theory that the next world war will be fought for water now seems to be outdated. The threat of war for food has assumed incredible proportions during the last one year. Who could have imagined that the economy of the modern world would be so drastically changed within 12 months time when the prices of food items will be raised up to 130 per cent? The reasons given by the analysts are varied: population growth, limited arable land, dearth of irrigation water, reduced soil fertility, primitive farming methods and use of low quality seeds by the developing nations, skyrocketing energy prices, alternate use of maize and beans for bio-fuel, changing climate, global warming etc. etc. These factors have no doubt their bearing on the situation, but none of them could change the scenario so drastically. Speculative commodity trading backed by huge hedge funds is at the back of this fallout. We can measure inflation only with the help of some going interest rate. Now, if I say that the speculative trading (of any type) and hedge fund operations are possible only in an interest based economy, I will be running the risk of being branded an Islamic fundamentalist. So, we leave it here for someone else from the western world to mull it over. The US interest rate has come down to 3 per cent and a further cut is always on the card. They are not far away from a zero level. So, why not give the food sector a try, to start with, and work out a module for zero-rate food economy.
GIVE THEM A BREATHING SPACE
A recent report by the UN-sponsored group of 400 experts says:
Modern agriculture will have to change radically to better serve the poor and hungry if the world has to cope with a growing population and climate change while avoiding social breakdown and environmental collapse.
Continuing with current trends in production and distribution would exhaust our resources and put our children's future in jeopardy'.
United States has recently committed $ 200 million to help poor nations to fight the current food crisis that threatens the entire world with grave social and political implications. Social unrest and street violence have started raising their ugly heads in countries like Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar Philippines and Indonesia. While Philippines declared war on rice hoarders, the Bangladesh textile workers went on strike demanding immediate control over rising food prices.
UN chief Ban Ki moon has warned, "The rapidly escalating crisis of food availability around the world has reached emergency proportions." According to the UN Children's Fund, food inflation is forcing children out of classrooms and in to jobs to financially support their parents. According to the World Food Program spokesman, a significant drop in school attendance is being observed in Nepal. The hardest hit is on the poor nations where 75 per cent of household income is earmarked for food as against an average of 15 per cent for the developed nations. In US, only 10 per cent of the income is spent on food. In case of Pakistan food expenses are as high as 43 per cent. In many countries, children get a warm meal only once and that too in the school canteen. Any signs of improvement are not in sight as the prices of rice; maize and wheat continue to raise the world over.
The silver lining in the dark clouds, however, is the shift in world focus from matters of lesser importance to the grave issue of food crisis. Raising the aid, grant and investment levels a few notches up for the food poor countries will not solve the problem. Crises of huge dimensions demand radical measures. The world financial organizations and the central bankers will have to go into a huddle as they do in case of a major stock exchange crash or a paralyzing world depression and come out with a simple economic solution to cool the overheated world food markets. The leading world nations will also have to shift their focus from arms to beans. The gun runners must now take the role of food procurers. Those who rule the world both militarily and financially must realize that their subjects need a breathing space to survive.
To keep the world affairs going, the poor nations need to be fed at least to a sustenance level. They may meekly surrender to political and economic exploitation but can not take hunger with mute resignation. The starved nations are more dangerous than the nuclear weapons. So, better watch out.