Surging inflation will stoke riots and conflict between nations, says report
Pastor Dale Morgan
*Surging inflation will stoke riots and conflict between nations, says
report*
· Merrill says gap between rich and poor will worsen
· Governments must curb rising prices, insists bank
* Andrew Clark in New York
* The Guardian,
* May 26 2008
Riots, protests and political unrest could multiply in the developing
world as soaring inflation widens the gap between the "haves" and the
"have nots", an investment bank predicted yesterday.
Economists at Merrill Lynch view inflation as an "accident waiting to
happen". As prices for food and commodities surge, the bank expects
global inflation to rise from 3.5% to 4.9% this year. In emerging
markets, the average rate is to be 7.3%.
The cost of food and fuel has already been cited as a factor leading to
violence in Haiti, protests by Argentinian farmers and riots in
sub-Saharan Africa, including attacks on immigrants in South African
townships.
Merrill's chief international economist, Alex Patelis, said this could
be the tip of the iceberg, warning of more trouble "between nations and
within nations" as people struggle to pay for everyday goods. "Inflation
has distributional effects. If everyone's income moved by the same rate,
you wouldn't care - but it doesn't," said Patelis. "You have pensioners
on fixed pensions. Some people produce rice that triples in price, while
others consume it."
A report by Merrill urges governments to crack down on inflation,
describing the phenomenon as the primary driver of macroeconomic trends.
The problem has emerged from poor food harvests, sluggish supplies of
energy and soaring demand in rapidly industrialising countries such as
China, where wage inflation has reached 18%.
Unless policymakers take action to dampen prices and wages, Merrill says
sudden shortages could become more frequent. The bank cited power cuts
in South Africa and a run on rice in Californian supermarkets as recent
examples.
"You're going to see tension between nations and within nations," said
Patelis.
The UN recently set up a taskforce to examine food shortages and price
rises. It has expressed alarm that its world food programme is
struggling to pay for food for those most at need.
Last month, the World Bank's president, Robert Zoellick, suggested that
33 countries could erupt in social unrest following a rise of as much as
80% in food prices over three years.
Merrill's report said the credit crunch has contributed to a global
re-balancing, drawing to a close an era in which American consumers have
been the primary drivers of the world's economy.
In a gloomy set of forecasts, Merrill said it believes the US is in a
recession - and that American house prices, which are among the root
causes of the downturn, could fall by 15% over the next 18 months.
The bank said Britain's economic outlook is "deteriorating" as consumer
confidence weakens. The Office for National Statistics yesterday said
that retail sales fell by 0.2% in April compared to March.
Global inflationary pressures have led to higher prices in Britain
highlighting the dilemma for the Bank of England's monetary policy
committee, which sets interest rates.
The MPC voted by eight to one to keep rates on hold last month in spite
of a rapid slowdown in the British economy. The Bank is concerned about
food prices that rose by 6.6% over the past year and soaring fuel costs,
feeding higher inflation, which is now at 3%.
Alistair Darling, the chancellor, met representatives of supermarkets
and farmers yesterday to discuss the threat to the economy from the
rising cost of food.
The US Federal Reserve, which has cut interest rates to 2%, is gloomy in
its outlook for the US economy because of the combined challenges of
slow growth and soaring commodity prices. The Fed is predicting that
unemployment and inflation will be higher than expected.
Oil prices are expected to continue rising rapidly after hitting a third
record in a row yesterday, as supply continues to outstrip demand.