Thursday, January 06, 2011

Great Britain: Inflation is soaring

Most foodstuffs in the UK are zero-rated for VAT – so you might be forgiven for thinking that at least the price of a loaf of bread would escape the heady mix of inflationary pressures that has gripped virtually everything else. Think again. From Argentina to the Ukraine – and everywhere in between – extreme weather has driven the price of wheat to record levels, threatening steep increases in the cost of many processed foods, including bread, pasta and biscuits. The bread rolls have escaped the Chancellor's clutches, only to fall victim to droughts and floods.

If an act of God was all we had to fear, we could be reasonably relaxed. Bad harvests come and go; a poor crop one year is generally followed by a bumper one the next. Yet the surge in wheat prices is part of a far broader pattern: almost all of the necessities in life, from utility bills to train fares, seem to be running out of control, with little chance of wage rises to compensate.

At the pumps and on supermarket shelves, prices are edging higher. Add in the pain of higher VAT, university tuition fees and the threat to mortgage costs posed by looming interest rate increases, and middle- and lower-income living standards have rarely seemed under such sustained assault.

While some of the pressure is self-inflicted, the majority is the result of wider global developments that are beyond the control of any government. Figures released yesterday by the UN Food and Agriculture Organisation show that global food prices rose to a record high last month, past the previous record of 2008, when rising prices sparked riots in some parts of the developing world. Many other raw materials and agricultural commodities are close to or above their pre-crisis peaks. Oil, though still well below the ruinous $140 a barrel it reached in the summer of 2008, is once more approaching the $100 level.

If you like, you can blame it on financial speculators: to the disgust of those who see food and raw materials as a basic human right, commodity funds are again all the rage among investors. Or you can blame it on the US Federal Reserve, which stands accused of monetary vandalism for flooding the world with cheap dollars
Read the rest here.

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