Commodities can still shock
The global economy may have come a long way, but in large parts of the world, the past few weeks are a reminder that ordinary life still revolves around a handful of basic goods. And rising food prices can still all too easily bring a government to its knees.
Just ask the Indian prime minister, who recently authorised emergency onion imports from Pakistan - after the domestic price of an onion trebled, in just one month. According to the FT, at least two Indian governments have been felled by the rising price of onions in the past.
We also have the government of South Korea releasing emergency supplies of cabbage, pork and mackerel, among other things, to keep control of rising inflation. And the Indonesian president launching a national campaign to encourage people to grow their own chillies. As I discovered from taking part in a special segment on the GMT programme this afternoon, in Indonesia, chillies are a very, very big deal. And their price has quintupled in barely a year.
Depending on how you measure it, commodity prices are now close to where they were in 2008, when food riots broke out around the developing world, and rising inflation in the UK and other big Western economies made it more difficult to cut interest rates in the lead up to the financial crisis in the autumn (see the chart below).
Many hope that this time it's different, because only part of the rise in prices is due to rising demand. The rest is due to (hopefully) temporary hits to supply, from crop failures and other shocks. Commodity prices have also been inflated by the fall in the value of the dollar.
In its latest edition of Global Economic Prospects, the World Bank shows that the domestic currency price of food, in many countries, has not risen nearly as fast as the dollar indices suggest (see chart below). Not that this is likely to be much comfort to anyone struggling to make a decent bhaji in downtown Mumbai.
Even if it is temporary, food inflation is clearly making an awkward situation worse in countries like China and India, which were already struggling to keep a lid on prices.
We shouldn't forget there is an important benefit to higher food prices: by raising rural incomes, they can actually help to lower the gap between urban and rural incomes. That is especially helpful in China. But the authorities there are rightly terrified of letting prices get out of control. Controlling inflation, in 2011, is priority number one.
But when it comes to oil, steel and other basic materials, the likes of India and China can at least comfort themselves that rising prices come partly from their own economic success. It is their growth is pushing up demand for these goods, even as the major economies struggle to put their recessions behind them. That had not happened very often in the past. With the notable exception of the oil crises of the 1970s, where rich country demand has gone, commodity prices have tended to follow.
Not for the last time, consumers and policy makers in the West are learning that when it comes to the global economy, they no longer call all the shots. There is also that lurking worry, that ultra loose monetary policy in the US, Britain and eurozone might be having a greater effect on prices and activity in the emerging world than it is having here.