Tuesday, February 26, 2008
STAGFLATION
It's been a while since that word has been tossed around. Last night it turned up in the evening news. Not a good sign for the immediate future of American households.
I've been writing rather a lot about Austrian economics lately, and their laissez faire policies, of which it would appear the price of gasoline is a direct result given the fact that there isn't a particular shortage of oil, yet the prices continue to rise.
Now it appears that we could see something similar in the price of food staples according to an article at Asiaone News sent in by a reader.
Normally, sky-high food prices reflect scarcity caused by crop failure. Stocks are run down as everyone lives off last year's stores. This year, harvests have been poor in some places, notably Australia, where the drought-hit wheat crop failed for the second year running. And world cereals stocks as a proportion of production are the lowest ever recorded. The run-down has been accentuated by the decision of large countries (the United States and China) to reduce stocks to save money.
Yet what is most remarkable about the present bout of 'agflation' is that record prices are being achieved at a time not of scarcity but of abundance. According to the International Grains Council, a trade body based in London, this year's total cereals crop will be 1.66 billion tonnes, the largest on record and 89 million tonnes more than last year's harvest, another bumper crop. That the biggest grain harvest the world has ever seen is not enough to forestall scarcity prices tells you that something fundamental is affecting the world's demand for cereals.
