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Wednesday, March 9, 2011
Rise in food and oil prices
Political turmoil in North Africa and the Middle East triggered by the change of government in Tunisia is pushing up crude oil prices. Crude oil prices, which were rather stable in the range of $70 to $80 per barrel the past year, are now hovering above $100 per barrel.
Food prices are also rising. Rising food prices are said to be behind a series of antigovernment demonstrations in North Africa and the Middle East. High oil and food prices are likely to hit households and could put a brake on the global economic recovery.
About 60 percent of world oil deposits are in the Gulf coastal areas of the Middle East. For the time being there will be sufficient crude oil and oil products reserves. But if antigovernment protests intensify in oil-producing countries, speculative funds may move to push up crude oil prices.
In the past month, crude oil prices rose some 17 percent. The current level is nearly three times the level of mid-February 2009, five months after the Lehman Brothers financial collapse. Electricity and city gas bills in Japan will rise this month.
Food prices have been also on the rise due to an increase in demand in emerging economies, bad harvests caused by climate changes and inflow of speculative money into markets. The food price index of the U.N. Food and Agriculture Organization hit 236 in February, with 2002 to 2004 serving as the base years — a record high since statistics were first taken in 1990.
On March 9 and 10, U.N. organizations and Asian developing economies will have an emergency meeting in Bangkok to discuss how to deal with rising food prices. The Asian Development Bank fears that continued political turmoil in North Africa and the Middle East and rises in the prices of raw materials and foods could intensify inflationary pressure and push down the economic growth of the Asia-Pacific region.
In addition to crude oil and foods, iron ore and metallurgical coal prices are also rising.
The Bank of Japan should carefully watch the situation and strive to implement monetary policy that will prevent an economic downturn accompanied by price rises.