Starvation Inflation

Robert Kurz

It was common knowledge that the huge government rescue packages and economic stimulus programs since the crisis collapse in 2009 contain inflationary potential that must be unloaded after a transition period. In fact, inflation is on the rise worldwide – especially in the global growth drivers China, India and Brazil, but to some extent already in the euro zone.

However, there are differences between the production sectors. Everywhere, food prices are outstripping all others. The official inflation rate in China is currently 5 percent; in the food sector it is 10 percent, and in real terms it is estimated at 19 percent. The price explosion for basic foodstuffs is even worse in India and other parts of Asia, in Africa and Latin America. Food price increases in the U.S. and the EU have also far exceeded the general inflation rate in recent months. According to the Food and Agriculture Organization (FAO), rice, corn, wheat, meat, vegetables and luxury foods have become more than 30 percent more expensive on average globally since the beginning of the year.

Why are food prices in particular exploding? Obviously, several causes of capitalist economic logic are intertwined here. Government programs and a flood of money from central banks lead to the actual devaluation of money, which affects all sectors. In the case of food, however, special factors are added. The increasing production of biofuel has a particularly serious effect: Oilseeds are being burned for fuel and acreage is being lost for this purpose. At the same time, however, the price of fossil energy has risen and with it the cost of diesel and fertilizer in agricultural production. This development is escalating because high oil prices make the conversion of agricultural products into fuel all the more attractive. Finally, such a situation in agricultural commodities attracts speculative mobile money capital, which bets on further rising prices and makes this process a self-reinforcing one.

The social impact of record food prices depends entirely on the proportion of income that has to be spent on food and drink. The majority of people in Asia, Africa and Latin America spend between 60 and 90 percent of their income on food. In China, the figure is still 30 to 40 percent, despite growth successes. In Europe, the figure is 5 to 10 percent. But these figures are deteriorating dramatically in all parts of the world. In the wake of the global economic crisis, which has by no means been overcome, global poverty has spread like wildfire, albeit unevenly. In many regions of the world, the incomes of large masses of the population have fallen to rock bottom. Now the price of, of all things, basic foodstuffs is surging. As early as 2010, the World Bank warned of new hunger revolts. The unbearable rise in food costs is playing a major role in the uprisings in the Arab region. And Spain shows that something similar is brewing in the crisis countries of the euro zone. Although no one here has to starve yet, in view of the rampant youth unemployment, the patience of the generations that are able to fight may be wearing thin if many can no longer afford even the cultural goods and technologies that have become a matter of course because food alone is becoming more and more expensive as budgets shrink.

Originally published in Neuen Deutschland on 05/30/2011

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