Surging oil and food prices fuel global inflation

Surging oil and food prices fuel global inflation

Soaring oil and food prices lifted inflation to record levels in Europe on Wednesday and posed a serious threat to governments worldwide amid expert warnings of social upheaval.

Record inflation has spared neither rich nor poor countries as food and energy prices have surged worldwide with booming demand in fast-growing Asian countries such as China and India.

Inflation in the 15 nations sharing the euro unexpectedly reached a record 3.6 percent in March, the European Union’s Eurostat data agency said Wednesday, revising up a first estimate of 3.5 percent.

“Food and fuel prices were again the main driver behind the up-tick in annual inflation,” said economist Sunil Kapadia at Swiss investment bank UBS.

In Asia, the Chinese government said food prices rose 21 percent in the first quarter of 2008 from the same period last year, posing a huge challenge to Beijing to rein in inflation.

The eurozone figures showed that food prices surged 6.1 percent in March alone while prices of basic staples such as bread, milk and cheese grew even faster.

Although the rising cost of food is a major headache in rich Europe, it is much more painful in poor countries and has triggered outbreaks of violence across the developing world.

As the prices of basic foodstuffs have risen sharply in recent months, violent protests have erupted in countries, including Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia.

Soaring food prices are causing logistical headaches for aid agencies committed to fighting hunger, not least the World Food Programme — known to many as the granary of the United Nations.

“We distribute four million tonnes of supplies each year, so the 55 percent rise in food prices since June 2007 has an enormous impact on our operations,” WFP spokeswoman Christiane Berthiaume told AFP in Geneva.

The Philippines, which imports more rice than any other country, unveiled plans Wednesday to spend a billion dollars in a bid to become self-sufficient in rice and other vital crops by 2010.

The announcement came a day after Indonesia banned its farmers from selling rice abroad and Kazakhstan, one of the world’s top producers of wheat, halted foreign sales.

Record oil prices have made the global food crisis all the more dire, cutting into any extra cash consumers have not spent on higher food prices and hitting the poor particularly hard.

The price of New York oil struck a historic peak Wednesday of 114.50 dollars a barrel.

The inflationary surge threatens to derail economies in Africa by encouraging governments to take “knee-jerk” reactions to cope with the stress, the World Bank’s top official for Africa, Obiageli Ezekwesili, said Tuesday.

“Any kind of exogenous shocks such as what we see with the rising food and rising energy prices can potentially derail that trajectory of growth,” she told a news conference in Washington.

“The issues of Africa could not be more important for the global agenda,” the former Nigerian education minister said. “It is through growth that poverty decline ultimately happens.”

In Europe, the European Commission warned workers against seeking big pay hikes in order to help offset extra living costs, saying that it could unleash an “inflation spiral.”

“It’s very important that these price increases don’t spread to other prices, especially salaries, in order not to trigger an inflation spiral, which would be the worst result,” commission spokeswoman Amelia Torres said in Brussels.

Economists say that some inflation relief might already be on the way, at least in Europe, with expectations for slowing economic growth to cool demand, and subsequently prices, in the coming months.

“Looking forward, we believe that inflation has just about peaked and … will be back around 2.0 percent by the middle of next year, driven fundamentally by the sub-trend growth,” Kapadia of UBS said.


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