When Rising Food and Energy Prices Begin to Wreak Havoc

This morning, we see Britain’s consumer price index grew in December to an annualized 3.7%. Fuel prices are growing at their fastest pace since July, and food prices are zooming at a rate last seen in May 2009.

Like the US Federal Reserve, the Bank of England has an inflation “sweet spot” of 2%. But Britain’s CPI has been above 3% for 13 months now. Unlike in the United States, even the “core” rate of inflation in the UK is rising at an alarming 2.9%.

“If history is any guide,” Chris Mayer contends, “inflation will likely get much worse. Everyone seems to know the US inflationary story of the 1970s. The official inflation rate hit nearly 14% by 1980.

“In other countries, it was worse. In the UK, inflation topped out at 27%; in Japan, 30%.

“The year 2011 is the year when inflation will play the role of wrecking ball,” Chris declares.

“Emerging markets have been a vital part of the investment story of the last decade, for sure. Yet rising food and energy prices pose a big risk to them.

“In India, food prices are at their highest levels in more than a year, rising 18%. The dabbawalla, when he is done delivering lunchboxes, trots off to the market and finds that the price of onions has doubled in only a few months. Even the basics, like potatoes, have become expensive to the average Indian.

“In China, the typical Chinese also faces rising prices for nearly everything. The official inflation rate recently hit a 28-month high. But it’s the surging price of coal that may prove to be China’s Achilles’ heel, at least in the short term. Coal is what powers the great boom in China. And coal is at two-year highs.

“The basics like food and energy are like brakes on these economies.”

But that’s not all they will put the brakes on… Here’s an old video of Jim Rogers, Vancouver keynote, saying that given the current reckless spending and printing strategy in Washington, we’ll eventually experience “an inflationary holocaust.” In 4:33 or so is the mark that he gets into the holocaust theme.

Here’s another one from our friend Ron Paul laying into Ben Bernanke a while back. In the 3:43 mark he “goes off” on the Fed chairman explaining how money printing is already hurting retirees.

And for good measure, here’s video of another Vancouver veteran, Nassim Taleb, saying he feels more jittery about a currency crisis now than he did when he left his native Lebanon during a meltdown.

Fact is, once it gets started, inflation is hard to stop. Not that Wall Street bankers or your friendly Washington representatives give a hoot. They’re not the ones who get walloped when money stops buying necessities…and interest rates spiral upward out of control.

Addison Wiggin
for The Daily Reckoning