Inflation Up 8.1% In China, 3.6% In Europe: Multi-Year Highes

April 16, 2008 by Douglas A. McIntyre

Inflation in Europe rose 3.6% in March, the highest rate in 16 years. In China, inflation moved up 8.1%. According to The Wall Street Journal, the Communist government’s target was 4.8%. Pretty big miss.

The rising costs of goods and services now has most of the civilized world firmly by the throat. It is not going to get any better. The story has been written too often that the causes of increasing prices are oil and commodities, especially food. The hidden culprit is rising demand. Gas is still up in the US because people are still driving. Food prices in China are up because people are still eating. Growing nations like India and Venezuela have to "buy" their expansion somewhere. That increases demand for everything from cooper to asphalt.

Most of the evidence now is the world’s oil supplies are maturing. OPEC is not increasing production because the cartel members have no incentive to. Large agriculture products providers like the US already have record acres under the hoe. Crop yield, even those from gene-altered seed, are reaching their unnatural limits.

Because these things are global problems they need global solutions. Governments have demurred from getting together. Most of the conversation at this point is about blame and not solutions.

What all of this leaves is an ever-increasing chance of stagflation in most of the world’s largest economies. Leaving aside the ability of rich nations to help poorer ones, rich nations may not be able to help themselves.

Central bank rate cuts allow financial companies to rebuild balance sheets, but the risk of lending money into the economy is cutting the availability of capital. Even those with no access to money are likely to spend what they have on food and gas.

The US may be able to take the lead in repairing these breaches in the world economy by buying food and offering it to consumers here and abroad at better prices. It could even open the strategic oil reserve to bring down oil prices. But, the cost would fall to tax-payers and their ability to pay taxes is already compromised

Stagflation, coming on like a freight train, is not going to be stopped.

Douglas A. McIntyre