India's prime minister has warned that the country's rapid economic growth is under "serious threat" from inflation.
Manmohan Singh said getting inflation under control was a matter of urgency, raising the prospect of an eighth interest rate rise in under 12 months.
Emerging markets like India, where GDP growth is running at 8.5%, are helping to drive global economic recovery.
But Mr Singh said India's inflation rate of 8.4% - and food price inflation of 17% - was unsustainable.
"Inflation poses a serious threat to the growth momentum. Whatever be the cause, the fact remains that inflation is something which needs to be tackled with great urgency," he said.The highlighted line is worth noting.
As discussed in the previous hour’s post, the rest of the world is coming to the conclusion that the U.S. Federal Reserve’s policies of loose money, ZIRP, and the various iterations of Quantitative Easing are responsible for the run-up in commodity prices—and therefore, the run-up in the price of foodstuffs.
Politically, for a lot of countries—including India—it is awkward to point out the obvious, except through elliptical phrases like “Whatever be the cause [of the shithole we find ourselves in]”. They can’t say, “You stupid Americans! You’re flooding the world with dollars! Driving up the price of basic foods! Causing riots! Causing political upheaval! Stop printing dollars!”
They can’t say that—but other countries can. Countries and groups with marginal or antagonistic relationships with the U.S.—such as Iran, Venezuela, maybe Russia—can say out loud what most of the world is thinking.
And they can take advantage of the situation, at the U.S.’s expense.
Furthermore, if what is happening in Egypt—severe political destabilization brought about by food price inflation—starts happening in the rest of the world, then more and more countries will start taking steps on a path that hurts everyone: Food price controls, aggressive capital controls, government crackdowns on dissenters, trade barriers.
It’s obvious: If a lightly-to-mildly repressive regime sees food prices rise which brings about social discontent, what are they going to do? Stand by idly? Let what happened to Mubarek happen to them?
Of course not! They’ll subsidize food, and put trade barriers to make it stick. They’ll install more aggressive capital controls, to prevent capital flight. And if the food situation gets bad, they’ll round up the dissidents before they’ve had a chance to organize—so it’ll be in the interest of these lightly-to-mildly repressive regime to become aggressively repressive regimes.
These are the unintended consequences of the Federal Reserve’s policies.