The world faces an inflationary time bomb as shortages of food threaten to push prices to fresh all-time highs.
A variety of freakish weather conditions across the world has sent the price of staples including wheat, pork, rice, orange juice, coffee, cocoa and tea to fresh highs in recent weeks. Yesterday's decision by the Russian government to ban the export of wheat to protect home consumers saw grain prices jump 8 per cent on the day, on what was already a two-year high. Meanwhile, the burgeoning demand for foodstuffs and raw material growth in the resurgent economies of China and India has also driven oil, copper and other industrial commodities higher.
Taken together it suggests that Western nations will be hit by a sharp inflationary spike next year, as the price of bread, beer, petrol and many other everyday items climbs higher again. Given the sluggish prospects for growth in Western economies it threatens a return to "stagflation" – stagnant growth coupled with high inflation. The Governor of the Bank of England, Mervyn King, has warned that inflation will stay above the official target of 2 per cent for "much of next year". At least for a time it could spike much higher as global commodity prices surge once again, exacerbating the VAT rise in January.
In developing and emerging economies, however, the challenge is in some cases a matter of life and death. In these countries food represents a much higher proportion of household budgets than in the West, and they are less able to withstand such shocks. Freakish weather, as in Pakistan now, can also lead to immediate demands for extra food supplies.
Fears that the population may simply not have enough to eat because of the drought in Russia, the Ukraine and Kazakhstan, one of the world's great "bread baskets", prompted the Russian Prime Minister, Vladimir Putin, to sign a decree yesterday prohibiting the export of wheat, barley, rye, corn and flour until the end of the year. "We must prevent domestic prices from rising, preserve cattle herds and build up reserves," he said. Mr Putin added that ending shipments would be "appropriate" to restrain domestic food prices, which rose 19 per cent last week alone.
Conversely, flood conditions in Canada, another major grower, have also reduced supply. World wheat prices are up 92 per cent since early June. Worse could follow: the Russian weather has also threatened the next sowing season, and has harmed other crops such as sugar beet, potatoes and corn.