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.
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."
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.
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%
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%.
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
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."
Riots Commence As The Fed's Loose Money Policy Leads To First Violence Of
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.
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.
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).
Things that seem pretty minor to Americans -- like $3 gas and an extra
quarter for a box of Cracklin' Oat Bran -- 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 to surging demand. So it's not yet a systemic, generalized,
global inflation, and bumper crops in the coming year would ease some of the
Still, the US is clearly exporting inflation. Because we import much of
what we consume, newly created-dollars flow overseas where they pump up
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?