Inflation

Soaring food prices have suddenly become a major concern for policy makers in East Asia.  The price of rice - which provides one third of the region's caloric intake - is a particular worry.  Rice prices have been moving higher since around 2004, although this was from very depressed levels in the early years of the decade.  Prices surpassed $300 a ton in early 2006 for the first time since the late 1990s, kept moving higher, and then took off at an accelerating pace from late 2007:  up 11 percent in the the fourth quarter, then 56 percent in the first quarter of 2008 and then 61 percent in April 2008 alone. Prices touched over $1000 a ton on some days in April. Domestic food price and overall consumer price inflation has accelerated in most economies and the pace of poverty reduction in East Asia  in 2008 is - at a minimum - likely to slow .

Last week China reported its first quarter GDP data.  Consumer inflation for the quarter was 8%, which is too high, but we already knew that.  The main news was that GDP growth came in at 10.6% year-on-year.  This is down from last year’s 11.7% rate, but higher than most forecasts for 2008 (including the Bank’s revised 9.4% forecast).  There was a healthy decline in the trade surplus for the quarter of about $5 billion or 10%.  The trade adjustment took a good form in that exports grew at a respectable 21% rate while imports surged 29%.  Most of this increase in exports was to the European Union, while growth of exports to the U.S. moderated to a 5% rate.  All of this looks to be in the direction of the rebalancing that China is trying to achieve.

World Bank President Robert Zoellick is calling for a New Deal for global food policy – a reference to the 1930s Great Depression-era initiatives of American president Franklin D.