Inflation Fears in India -- Food Prices Up 20%
byDec 17th 2009 10:15AM
The Federal Reserve said Wednesday that it won't raise interest rates anytime soon. The agency believes that the economy is still too weak to do anything that might bank the fires under demand for goods and services. Unemployment is too high, energy and gold prices have started to drop, and housing values are not likely to recover, at least not for several quarters.
But not every nation shares our situation: In many cases, consumer prices outside the U.S. are rising fairly rapidly.
India's commerce ministry said on Thursday that wholesale food prices were up 19.95% in that country for the week ending Dec. 5, compared to the same week a year ago.
India's GDP growth rate, like that of China, is moving back in the direction of 10% and was nearly 8% last quarter. So some of the increase in food prices is part of the natural inflation that tends to come from rapid economic growth. But India's problem is not nearly that simple. Bad weather inside India has hurt crop yields over the last year. Some scientists believe that the rise in carbon dioxide emissions linked to global warming is reducing agricultural production in Africa, and that the problem could spread to other continents.
In effect, food price inflation in India could be a byproduct of the beginning of a sharp drop in global agricultural production. Earlier this month, the United Nations Food and Agriculture Organization warned in a report that the increase in global food prices could accelerate due to low levels of cereal stocks, crop failures in exporting countries, rapidly rising demand for for bio-fuels, and higher oil prices.
One proposal put forward by the U.N. at the global warming summit was for developed nations to invest $30 billion in assisting poor nations in their attempts to cope with the issues of "rising seas, drought and other severe effects of global warming, including economic and physical security."
The global economy, which is likely to recovery slowly from the recession, will not trigger inflation in most sectors, but food may be very different. Its supply may be falling due to factors that have nothing to do with worldwide GDP or interest rates, and the process may be nearly impossible to reverse.