Expect more inflation as Oil Reaches $100

Inflation… commodities bull run is not finished by a long shot! the upsurge in prices of the basic things that we all need is going to cause base level inflation to rise, the kind that could upset China and India’s growth as the things they manufacture become more expensive to make, however the market doesn’t embrace increased end user prices as the are suffering already from the same inflation.

For Oil to hit $100 a barrel is something that people used to joke about, today its real. There is upset in too many of the worlds oil producing regions. Nigeria has some of the best oil but they also have some of the best examples of abuse in human rights (read the story of Ken Siro Wiwa) and there are rebels out there fighting agains the way oil profits are distributed they are called ‘MEND’ or Movement for the Emancipation of the Niger Delta.

Here is something to think about, not a consipracy theory so much as a novel observation: What if it serves the Oil companies to have such high prices? The same barrel of oil costing roughly the same amount nets even more profit? Is this a way to keep profits high? We need not wait for 2020 or whenever we are being told that oil will run out. The oil companies are certainly to blame in the respect of the way that they gain rights to land etc. An article in the National Geographic in 2007 noted that often Village Chiefs are given money for pipes going through their land etc. but that the villagers don’t see any of it, so they create disparity in order to acheive their aims. Divide and conquer.

An article in the Economist recently spoke of ‘An end to Cheap Food’ which noted that after 30 years of food getting cheaper it is getting rapidly more expensive. Wheat has more than doubled in price this year and the Economists food -price index is at its highest since it was invented in 1845. food for thought (pun fully intended)

‘Agflation’ is the term used. Is land more expensive? Yes. Is Transporting food to market more expensive? Yes because fuel is more expensive. However some things don’t have to be this way, take corn for instance. The USA has more corn that it needs however now instead of using it for food its being used to make biofuel and from what I have read the carbon released to make it is more than the carbon it saves so its as bad as petrol. Brazil makes biofuel out of cane sugar and does so very effectively, and cheaply too but the USA won’t allow it to be brought in as it effectively has a trade barrier against it. This is injustice at its worst, its everybodies world and we all have a duty to save it but alas, this is the current state of play.

What bothers me the most is that people will buy biofuel made from corn thinking they are doing their bit, in a US that is dominated by large engine vehicles. Far better would be to use your voice and vote and get proper biofuels made and brought in. The amount of corn going to ethanol this year accounts for half the world supply. I guess my whiskey will be getting pricier too, I won’t be able to afford to drown out the pain any more.

On the bright side this may be an opportunity for agrarian society to get ahead, for the last 200 years cities have been the place to make money, little did we think that there is ‘gold in them thar’ hills’ in the form of wheat. It may also hurt the worlds poor and most of all the worlds poorest…. food in third worlds accounts for over a third of as household budget.

I can’t begin to think of the effect this will have potentially on China. The thing to remember is that the world is doing better financially for the most part. This is good. I no longer worry about paying for a bucket in the hardware shop. But somewhere out there a person is labouring away making these buckets and moving to the middle class, they want the same lifestyle I have – because although I’m by no means well off, compared to most of the world I’m doing pretty damn good. When inflation hits these sectors of the worlds labour force it could cause meltdown. China is hosting the Olympics, the last thing they need is an uprising, and don’t even get me started on Taiwan who have their elections this year.

Trend spotting is tricky and indeed a book I am reading at the moment called ‘microtrends’ would indicate that a clearer picture is drawn from looking at the small rather than the large. So maybe I will be able to divulge the future by staring at my bank balance?

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