A surge in food and energy costs is stoking inflation in emerging markets and causing riots that may topple governments, said Nouriel Roubini, the New York University economist who predicted the financial crisis.
Global food costs monitored by the United Nations jumped 25 percent last year, reaching a record in December, and crude oil traded in New York is at $86.38 a barrel, about 53 percent more than its average over the last decade. There have been protests in Algeria and Egypt, and Tunisia’s President Zine El Abidine Ben Ali fled the country on Jan. 14.
“In emerging markets, it’s leading to rising inflation, to reduction in disposable income, it’s leading to riots, demonstrations and political instability,” Roubini said in an interview in Davos, Switzerland, today with Tom Keene on Bloomberg Television’s “The Pulse.” “It’s really something that can topple regimes, as we have seen in the Middle East.”
Governments from Beijing to Belgrade are increasing imports, limiting exports or releasing supply from state stockpiles to curb food inflation. Countries probably spent at least $1 trillion on food imports last year, with the poorest paying as much as 20 percent more than in 2009, the UN says.
The Standard & Poor’s GSCI Agriculture Index of eight futures rose 44 percent last year, the biggest advance since 1974, data compiled by Bloomberg show. The gains were led by cotton, corn and wheat as flooding in Canada, China and Australia and drought in Russia and Europe ruined crops.
Wheat rose another 7.7 percent this year and corn 4.3 percent. Russia, which accounted for about 13 percent of global wheat exports in 2008-2009, banned grain shipments last year after its worst drought in at least a half century. Ukraine also imposed export limits to curb domestic prices.
Security forces and police broke up a rally against President Hosni Mubarak’s government in Cairo earlier today, firing tear gas and wading into the crowd with batons. Core inflation in Egypt reached 9.65 percent last month. In Algeria, three people were killed and 420 injured in clashes with police this month.
Risks of global instability are rising as governments cut subsidies that help the poor cope with surging food and fuel costs, Josette Sheeran, head of the UN’s World Food Programme, said in an interview Jan. 24. French President Nicolas Sarkozy said the same day he will use his leadership of the Group of 20 this year to make regulation of commodity markets a priority and inaction may cause food riots in the poorest nations.
“In many of these emerging markets, two-thirds of the consumer price index is essentially food, energy and transportation,” Roubini said today. “When these things rise, it becomes a really significant social cost.”