Price pressures across the emerging world are reaching levels that may soon threaten stability unless governments jam on the brakes. Inflation rates have reached: Venezuela (22pc), Vietnam (21pc), Latvia (18pc), Qatar (17pc), Pakistan (17pc), Egypt (16pc) Bulgaria (15pc), The Emirates (11pc), Estonia (11pc), Turkey (9.7), Indonesia (9pc) Saudi Arabia (9.6pc), Argentina (8.9pc), Romania (8.6pc), China (8.5pc), Philippines (8.3pc), India (7.6pc).
Many of these countries are now suffering the worst prices spiral in thirty years, setting off widespread riots. India's government has suspended futures for a clutch of key commodities as states resort to draconian measures.
Emphasis added by me.
And:
While the soaring cost of food and energy is the key driver for the poorest countries, others are ensnared by their own currency pegs. Most Gulf states are linked to the dollar, forcing them to shadow the US Federal Reserve's super-loose interest rate policy, with inevitable over-heating. China operates a semi-fixed rate, or 'dirty float'.
Christian Noyer, governor of the Bank of France, said this week that the pegs had become a major headache. "The world environment has become very inflationary. Many emerging economies are partially 'importing' US monetary policy, although their position in the economic cycle is fundamentally different," he said.
Emphasis added by me.
Governments are going to start to wake up to that fact. Alternatives will be sought. The future could find America financially alone, like a plague carrier in an isolation ward.
Not that the current configuration of the Euro is salvation:
The ECB's task is doubly complicated by the yawning gulf between the Germanic and Latin blocs of the eurozone. Industrial output fell in Italy, France, and Spain in March. April manufacturing orders fell at the fastest rate since the dotcom bust in Italy and Spain. "We're suffering a clear and profound slowdown in the Spanish economy", said Pedro Solbes, the country's finance minister.
The issue of Spain's crumbling property market intruded on the bank's policy agenda last week, pitting the South against the hawkish Bundesbank chief Axel Weber.
It is understood that the meeting broke down into a fierce exchange of national views, ignoring the EU treaty requirement that the ECB focus on the eurozone as a whole. EU officials have begun to ask whether Mr Weber is committed to monetary union. A senior German advisor told a closed group of investors in London last week that "it wouldn't matter in the least if Spain left the euro".
David Bloom, currency chief at HSBC, said the single currency was likely to fall from near record highs as investors woke up to the realities in the South.
"The euro has been trading on the German export story. The market has conveniently ignored the collapse in Spain, and the near recession in Italy," he said.
Emphasis added by me.
Could some countries be evicted from the eurozone? If the weakest members were excised, wouldn't that drive the Euro into even higher valuations against the U.S. dollar?
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