Rising prices: hidden poverty

Cardiff Business News

As the UK announced the inflation rate increasing to 4%, data released by the World Bank revealed 44 million people have been thrown into poverty since last summer as a result of rising food prices.

The inflation increase made the headlines today as Mervyn King, the Bank of England Governor will be expected to write to the Chancellor of the Exchequer, George Osborne, explaining why inflation remains about the target level of 2%.

Mr Osborne, in an interview with the BBC blamed in part rising commodity prices on the increased level of inflation.

Yet the Guardian economics editor, Larry Elliott, picked up another angle on the effects of rising commodity prices, although the issue has been pressing for some time now.


Rising food prices will push more people into poverty (World Bank)

According to Index Mundi, an internet market data provider wheat prices have almost doubled year-on-year.

But how does rising commodity prices such as the price of wheat affect people on the ground?

Last week I wrote about high inflation in Egypt contributing to unrest, which is exactly what Elliot draws from Robert Zoellick, the current World Bank President in the Guardian article.

Rising commodity prices passes increased charges to importing countries, causing inflation. This means the price of products will go up to meet the cost of importing commodities and pass this on to the consumer. If wages and interest on savings do not stay in line with inflation, they are gradually eroded and relative wages fall.

But the problem of rising food prices could be exacerbated by the worst drought in China for over 60 years, according to a recent report in this week’s Economist. It writes, if China, which is traditionally self-sufficient in grains, could set wheat prices to rocket should the country start to import wheat.

As global markets are interconnected, rising prices will not only affect us in the UK (and in Wales) as we see petrol prices and food charges going up, but developing countries will be hit even harder as those with little struggle to keep up with rising prices.

Coupled with the rise in Brent crude oil, we should expect Mr King to be writing letters to the government for the foreseeable future.

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