Morning:
8°c
It's not every day that you get an open letter from the National Pig Association. They are squealing because their porkers are getting much more expensive to feed, and they're not alone. The price of skimmed milk powder has doubled in six months, partly because the Chinese have suddenly developed a taste for the white stuff and can now afford it.
This is just an amuse bouche for what is to come, for while milk powder is not high on the housewife's shopping list, butter and cheese are and their prices are going to rise sharply.
Across the Atlantic, wheat prices are shooting up faster than the ears of corn in Europe's sodden fields, rising by 20% in the past month alone and by 50% since May.
Hopes that the southern hemisphere's farmers would get some of the rain we'd rather go without are fading. Hovis is going to cost 8p a loaf more and other grain users, such as brewers, will also have to pay up.
The weather is a convenient scapegoat, since it can't answer back, but rising food prices are a form of inflation that, unlike house prices, council tax, duties or airport tax, no economist can argue away. The wonder is that it's taken so long to appear.
The world's money supply has been racing away, and while the cash was going into shares, real estate or junk bonds, we could pretend that it was going to stay there and not reach the High Street.
It's now leaking into all sorts of unexpected areas, like the cost of staying in the Premier League, up by two-thirds in a year according to the accountants at Deloitte, to the point where clubs are spending £500million a season. Brian Quinn, who learned the art of understatement at the Bank of England and who has retired to chair Celtic FC, says: "It is questionable whether the industry as a whole is financially sound." The illusion that asset price inflation would somehow not reach the High Street was a direct result of the Chinese industrial revolution, which drove down the cost of making things as dramatically as our own version three centuries ago.
This agreeable (for the customer) effect is now coming to an end. Few now expect significant further reductions in the price of Made in China; they are learning the hard way that money invested in quality control isn't always wasted and that restoring a manufacturer's reputation after recalling a million Barbie dolls is expensive.
The end of the great Chinese deflation promises real trouble ahead. It was an easy decision today for the committee to keep interest rates at 5.75%, since any movement would have been asking for trouble. Yet the committee's brief is simple: to keep the official measure of inflation as close to 2% as possible. It isn't invited The answer to consider the state of the economy, growth prospects, or the impact on flaky borrowers of higher interest rates, however much others may urge it to do so.
Fortunately for the committee, the markets are doing at least some of this dirty work for it. Bank Rate may be unchanged but the cost of money has risen dramatically; Libor, the rate off which lenders price their loans, is now a full 1% above Bank Rate, instead of its more usual 14% or less. Essentially, the markets have raised Bank Rate to 634% already.
While Libor will surely fall back as confidence returns, the difference between what good and bad borrowers will have to pay may not.
Do not assume, either, that a slowing economy will automatically mean subsiding inflation. We've had inflation without growth before, described by the suitably ugly word "stagflation".
As the pig farmers are squeezed between rising food costs for their beasts and the animals posing as supermarket buyers, it's no wonder they are squeaking.
answer to how we Email: neil.collins@standard.co.uk
