The Rice Panic of 2007

On November 4, 2011, NPR’s Planet Money did a “blast from the past” podcast reviewing the course of events that led to the rice panic of 2007 and its eventual end. From India’s decision to ban rice exports to hoarding across Asia to corrupt government manipulation in the Philippines of a then vulnerable rice market, we get to reminisce about how rice prices doubled ad then almost doubled again in just four months. The panic finally ended after economists convinced the U.S. to allow Japan to sell its stockpile of rice that it maintains as part of a trade agreement that forces Japan to buy rice from the U.S. it does not want. Ironically enough, the rice was never sold but the psychological impact of the announcement was enough to end the hoarding and bring the market back to a semblance of sanity.

A truly fascinating tale of a completely avoidable bubble in the price of rice.

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Venezuela looks to expand price controls

If inflation levels remain higher than you like, simply regulate inflation out of existence, right? This logic appears to be the approach of the Venezuelan government as it seeks to curb what it sees as rampant speculation and unfair business practices. According to Nightly Business Report, inflation was 27% last year in Venezuela. The proposed Law for Fair Costs and Prices will create the Superintendence of Costs and Prices that will determine the prices of certain products in an effort to curb inflation. The law bolsters existing price control efforts.

Look for inflation to get worse, black markets to grow, and scarcity of goods to get more severe. It seems to me Venezuela is going after symptoms rather than causes.

For more detail, see “Analysts: Pending price-control law could backfire.”


China continues to lose its fight against inflation

We have chronicled on these pages China’s struggles with inflation. It appears the pressures are only getting worse. Bloomberg reports “China Inflation May Be Too Hot for Controls Amid Cash Glut“:

“Standing near his 12-table noodle shop on Beijing’s Yonghegong Avenue, owner Liu Heliang says meat and vegetable prices have climbed 10 percent in a year and staff wages are up 40 percent.”

“Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food. Because the measures would do nothing to counter the 54 percent surge in money supply over the past two years, the risk is they will prove insufficient to cope with the challenge.”

It seems consumption is declining in the wake of this inflation, but not fast enough to cool prices down. The Chinese government is worrying even more about what will happen to the many millions of poor people who may no longer be able to afford the little food that they currently consume.