The rapid acceleration of inflation in food markets promises the world a wave of social upheaval, especially in weak economies, warns Deutsche Bank.
Over the past year, the Bloomberg Agriculture Index, which tracks the prices of basic food commodities, has soared 76% to a fresh 6-year high.
Grain prices jumped 70%, sugar rose 60%, vegetable oils almost doubled, to a maximum in 10 years.
The broad FAO (UN Agriculture and Food Organization) price index of 90 commodities has been growing for 10 months in a row and is at its peak since 2014.
Since the early 1990s, the global economy has experienced a comparable jump in food prices only three times, notes Deutsche Bank strategist Jim Reed.
The last time this happened was in 2010-11 and was accompanied by a series of uprisings and protests in the Middle East, dubbed the “Arab Spring”.
Regime change revolutions have occurred in Tunisia, Egypt and Yemen, civil war has broken out in Libya, and massive protests have engulfed Bahrain, Algeria, Iraq, Jordan, Morocco and Oman. From the beggars of Lebanon, Sudan and Djibouti, unrest reached even prosperous Saudi Arabia and Kuwait.
The situation in which rising food prices led to revolutions and the overthrow of regimes has repeated itself many times in history, Reed notes in a review that cites zerohedge.
The Great French Revolution of 1789, which destroyed the absolute monarchy, was preceded by several lean years, due to which food prices rose sharply.
History repeated itself in the middle of the 19th century, when a potato crop failure for several years in a row provoked a wave of famine in Europe, followed by the revolutions of 1848-49.
In tsarist Russia, famine and crop failures led to a time of troubles at the end of the 16th century, and problems with the supply of bread to St. Petersburg were the last straw that buried the Romanov dynasty in 1917. Latent inflation and the accompanying deficits accompanied the agony of the Soviet economy in the late 1980s.
“Given the severe trials that the pandemic has already brought, this new wave of turmoil will not come as a surprise by historical standards,” Reed writes.
Emerging economies are more vulnerable because consumers spend a much larger share of their income on food than in the developed world, he warns.
The inflationary wave in world markets was raised by central banks, which pumped $ 10 trillion of money into the system.
Over the past year, the aggregate balance of 6 key world central banks, including the US Federal Reserve, the ECB and the Bank of Japan, has increased from 15 to 25 trillion dollars and continues to grow, updating historical records.
Inflation is hitting multi-year highs in Western countries, but in absolute terms it remains negligible: 2.6% in the US, 1.3% in the euro area, 1.7% in Germany.
At the same time, in Turkey, the growth in consumer prices exceeded 17%, in Brazil it exceeded 6%, and in India it is approaching 6%.
In Russia, general inflation set a 5-year record in March (5.8%), and the growth rate of food prices became the maximum in 6 years – 8.25%.
In Lebanon, which defaulted last year, inflation accelerated to 200% after the national currency collapsed 10 times over the past year.
In Nigeria – Africa’s largest economy – food inflation reached 22%, while a third of the working-age population, or 23 million people, are unemployed.
While Western Central Banks keep interest rates at zero and continue to print money, flooding the markets with liquidity, regulators in developing countries are forced to tighten their policies in response to accelerated price increases.
In March, five EM central banks at once raised interest rates – in Ukraine, Georgia, Brazil, Turkey and Russia.
The Central Bank of the Russian Federation at its April meeting again increased the key rate, and at once by 50 basis points, to 5% per annum, which was the sharpest step up since 2014.