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TOP TREND, NEW WORLD DISORDER: INFLATION IN RICH NATIONS IS HARDEST ON THE POOR
A food bank in Norway has seen demand rise 30 percent this year compared to the first half of 2021, itself a year that saw more people in the oil-rich nation needing help to have enough food.
U.S. food banks also are reporting higher demand this year, while supermarkets see customers foregoing meat and fish and buying cheaper store brands instead of nationally advertised labels.
In Britain, food prices rose 8.6 percent in May, year over year, as households’ energy costs rose by as much as 40 percent.
June’s price for cheddar cheese, a U.K. favorite, soared 59 percent year over year; milk cost 27 percent more there in April than a year before.
Food insecurity touched 15.5 percent of British households during the six months ending 30 April, more than double the 7.6 percent before the COVID crisis, the Food Foundation said.
The foundation’s May survey found 57 percent more Britons are skimping on food purchases or missing meals, compared to pre-COVID numbers.
About 7.3 million adults were living in households that had gone without food at some point in April or couldn’t physically get it, the survey reported, compared with 4.7 million in January.
“We’re seeing real food poverty for the first time in a generation,” John Allan, chair of Tesco, the U.K.’s largest supermarket chain, said in a recent BBC interview.
Forty-four percent of Brits surveyed by the U.K.’s Office of National Statistics in May reported buying less food because prices are so high.
In poorer nations, people spend a higher proportion of their incomes on food, making higher prices a flashpoint for unrest. Nigerians spend an average of 59 percent of their incomes on food; in Mexico, the figure is 28 percent, compared to 9.4 percent in Great Britain.
The U.S. food price gap is similar: the poorest Americans use 27 percent of their income to buy food, while the highest earners spend only 7 percent.
Skyrocketing food prices were a key factor in the collapse of Sri Lanka’s government after protesters swarmed the presidential palace and torched the prime minister’s house.
Almost 2.5 billion people—about a third of the world’s population—are facing moderate or severe food insecurity, according to the United Nations World Food Program.
TREND FORECAST: As the dollar has grown stronger, other currencies have weakened, making food even more expensive while also giving governments in poor nations fewer resources to use to subsidize food.
Out-of-control prices for food and fuel historically are flashpoints for social unrest.
In the West, that unrest is likely to take the form of voters turfing out whatever parties or factions are in power at the moment.
In emerging nations, unrest often takes the form of violence and political turmoil. Sri Lanka’s fate is a reminder.
There are signs that inflation may be easing, as we report in “Is the Commodities Supercycle Over or Just Paused?” in this issue.
SOUTH KOREA’S INFLATION WORST IN 24 YEARS
In June, South Korea’s consumer prices rose 6 percent, year on year, rising from 5.4 percent in May and setting the fastest pace since Asia’s financial crisis in 1998, the Financial Times reported.
In August 2021, Korea’s central bank became the first among developed economies to raise its rate following the COVID crisis.
The Bank of Korea has raised its rate five times, by a quarter-point each, in the past 11 months to a current level of 1.75 percent.
This week, the bank is due to decide whether to increase rates again. The new inflation record adds pressure to officials to lift the rate yet again.
The weakness of South Korea’s Won currency also will play into officials’ deliberations.
The won gave up 6.7 percent of its value against the dollar in this year’s second quarter. Among Asian currencies, only Japan’s yen has turned in a worse record for the period.
As a result, the bank’s rate-setters face a dilemma.
South Korean households have record-high debts and the export-driven economy has slowed, arguing against raising rates again.
On the other hand, the U.S. Federal Reserve is expected to raise U.S. rates again next week. South Korean financial institutions would need a higher interest rate to compete with the U.S. for investors.
Large economies risk recession in the coming months by raising interest rates as inflation continues, analysts at Nomura have warned.
Last week, the Royal Bank of Australia raised its key rate for the third time, lifting it by a half-point to 1.35 percent as bank officials warned that inflation there, already galloping at a 21-year record pace, could reach 7 percent this year.
TREND FORECAST: This is not rocket science. The higher inflation rises and the higher and faster central banks raise interest rates, the deeper economies fall.
HUNGARY’S CENTRAL BANK RAISES KEY INTEREST RATE 2 PERCENTAGE POINTS
The Hungarian National Bank raised its base interest rate two full percentage points last week to 9.75 percent to prop up the forint, the national currency, after the forint lost 5 percent of its value in a single week during a political scuffle with the European Union (EU) over Hungary’s massive national debt.
The interest rate is now higher than it has been in ten years.
Hungary’s benchmark 10-year bond yield has spiked to 8.7 percent on fears that the EU will not offer financial aid to Hungary to prop up the nation’s post-COVID recovery.
Grants and loans worth €15 billion are at stake as the EU waits for Hungary to make fiscal policy changes, including the higher interest rate.
The forint’s value bounced through the trading day after the bank announced it would lift the rate.
“The market is now waiting for the EU to say it approves of the Hungarian concessions and [is] ready to make a deal quickly,” economist Peter Virovacz at ING Bank told the Financial Times.
The central bank said it will raise rates to meet inflation as long as prices continue to rise. Hungary’s inflation has reached 10.7 percent, the highest in 20 years, and could climb to 14 percent yet this year, the bank has warned.
TREND FORECAST: The forint is down 10 percent against the euro so far this year, and the euro is down to 20 year lows against the dollar.
Therefore, inflation will continue to rise in Hungary as it will cost more for people to buy less. And, the higher and faster they raise interest rates to beat inflation, the deeper their economy will dive into recession.