If you think inflation is bad in China, you ain't seen nothin' yet
The rate of inflation in China hit 8.7% last month, its highest level in eleven years. The rapidly skyrocketing price of food in the country, up 23.3%, was the main culprit. The unexpected blizzards that hit China destroyed crops and slowed the shipment of food to cities added to rising global food prices. In an effort to help slow inflation, the Chinese government imposed price controls in January on a number of agricultural products. Excluding food, inflation in the country was supposedly a much more manageable 1.6% last month up slightly from the 1.5% increase in Jan. Many economists are skeptical that the snow storms are the main cause of the food inflation, citing a dramatic increase in the Chinese money supply.
I have a strong suspicion that we here in the United States could be headed for a worse bout with inflation that China is experiencing. The price of gas is going to go absolutely nuts this summer. A few months ago I was saying that we are going to see $4.00/gallon gas at some point this year. I would not be surprised if it goes even higher than that to $4.25.
Watch out for the price of food as well. The prices that we are paying in the grocery store, which have already increased considerably, do not completely reflect the surge in the grain prices that we have been seeing lately. The cost of groceries is going to increase this summer as producers pass increased costs along to consumers. And if we are unlucky enough to have a drought here in the U.S. this summer the price of grain is going to absolutely explode. Then food will become really expensive. I don't see how the huge run up in the price of gas and food won't put a serious crimp on discretionary consumer spending in the U.S. Add the credit crunch and falling home values to this and it doesn't paint a particularly pretty picture. I wonder if the massive rate cuts by the Fed and the rebate checks and whatever other action the government takes will be enough to avoid a recession, if we aren't already in one.