China: When Affording Food Gets Difficult

Inflation is still running like a brush fire inside China. Prices moved up 8.5% in April compared with the same month a year ago. The its a pittance compared to the rise in food costs, up 22.1% last month.

The central government also reported that exports are not growing. The slowdown in the West has finally ending the party in China.

The world’s most populated nation is a microcosm, albeit a huge one, of the trouble about it hit other large economies. Food prices are being driven by high agricultural product prices while global trade is being battered by flat of falling GDP in some of the largest nations.

China actually has it better than many countries. Its government still underwrites the price of fuel. That is a luxury not found elsewhere.

The world food situation is, for the time being, hopeless. Production from countries like the US is being compromised by the need to create alternative fuels. In the third world, farmers being driven off of their land by political turmoil which has turned to civil war. At the same time, the world’s malnourished population is spiking up sharply.

Inflation has become the great enemy of economic growth in China, trumping a slowdown in GDP. Prosperity among the new middle classes in the country has been pumped up by rising pay checks. Now, that income is being undercut by the cost of food staples. In the US, a similar process is taking place, but the main culprit, at least for now, is the cost of fuel.

Somewhere is the future, the lines cross. China cannot underwrite fuel costs forever. Food inflation will be joined by gas and diesel price inflation. In the US, while the huge engine of agriculture has muted increases in many items at the grocery store, demand for farm commodities overseas and ethanol production here will drag food prices up at a rate which could easily reach double digits.

There is a word for rising prices and falling GDP, but it has not been used much in the last thirty years.

Douglas A. McIntyre