Media & Blogs Sleep As Inflation Monster Bares Its Fangs

We bloggers/journalists love to chase political stories, while our response to the critical economic issues is generally similar to those related to climate change. I wonder when our fraternity would realise that environmental and economic issues are as much “political” and important as the ones perceived as the “real political” ones.

I was again reminded of this when I read a report in a recent issue of The Economist that “double-digit price rises are about to afflict two-thirds of the world’s population”. At times I wonder what right the media/blogs have to criticise the political leadership when the former itself triviliazes (or fails to understand) the real and important issues.

“Ronald Reagan once described inflation as being ‘as violent as a mugger, as frightening as an armed robber and as deadly as a hit-man’. Until recently, central bankers thought that this thug had been locked up for life. Thanks to sound monetary policies, inflation worldwide had stayed low in recent years. But the mugger is back on the prowl.

“Even though America is close to recession and growth in other developed economies has slowed, inflation is rising. Jean-Claude Trichet, president of the European Central Bank, this week gave warning about the mistakes of the 1970s, when inflation was let loose at huge cost to growth. His words were aimed at rich-country central banks, but policymakers in emerging economies are the ones who should most take heed.

“In countries such as China, India, Indonesia and Saudi Arabia even the often dodgy official statistics show prices have risen by 8-10% over the past year; in Russia the rate is over 14%; in Argentina the true figure is 23% and in Venezuela it is 29%. If you measure the numbers correctly, two-thirds of the world’s population will probably suffer double-digit rates of inflation this summer (see article).

“Taken as a whole (and using official figures), the average world inflation rate has risen to 5.5%, its highest since 1999. The main cause has been the surge in the prices of food and oil, which briefly soared above $135 a barrel this week. But Mr Trichet’s concern is that higher headline rates could push up inflation expectations, leading to bigger pay demands, and so trigger a wage-price spiral, as in the 1970s.” More here…