Quick! name three things humans need….. Times up. If you answered, food, fuel and housing you’d be bang on the money. As most of the world’s housing bubbles have popped, save for Canada, Australia and Brazil who all have economies that are rocketing along due to their, ahem, “strong fundamentals” – (read, they sell a lot of iron ore to China), we’ll just move right along to the other two fundamentals: Food and fuel. F+F, which are acting like BFFs, are rapidly rising in expense and as these commodities are so fundamental to day-to-day survival many of the worlds major economies are experiencing uncomfortably higher inflation as a result.
First up, Food, from the FT:
“The FAO food price index at its highest level ever and prices of many commodities reaching new records, rising inflation has become a key concern around the world. The problem is especially pernicious in emerging markets, where food consumption accounts for a larger share of families’ expenditures and where a surge of capital inflows has added to inflationary pressures.”
The chart below “shows the inflation trend for India, Brazil, Indonesia and China since the start of last year together with their policy interest rates (in circles) at the start of 2010 and today. All four countries have tightened monetary policy in response to rising prices but the way they have reacted shows the differences in their priorities and their willingness to act.”
Next on the block, Fuel.
Also from the excellent FT this week comes the following outstanding graphic, showing which countries will likely suffer most should oil rise to, and above, $115 per barrel.
The analysis concludes that while Asian nations including China, Thailand, India and Vietnam would be somewhat affected by rising oil prices, the fact that their economies aren’t as oil reliant will mean they will be buffered from the major of the impacts of extended rising prices.
So who will suffer? In short, Latin American countries – except perhaps Brazil which as the FT notes “has a much larger proportion of its energy coming from renewables than the region as whole – nearly half, if hydro is included” – and industrialised nations.
“The industrialised countries are in a much more vulnerable position as they are net oil importers and depend on oil ijmports for around two fifths of their total energy supply, with a marginal proportion coming from renewable energies. Spain and Italy appear to be particularly exposed to oil prices shocks as they are among the world top 10 oil importers and they rely on oil for almost half their energy supply.”