The end of the Cold War led to the integration of national economies through freer trade, which has boosted prosperity around the world. However, the distribution of that prosperity has been lopsided, especially in emerging economies ruled by autocratic regimes. On the other hand, enough people are enjoying rising standards of living to boost the demand for consumer staples and to lift commodity prices. Rising food and fuel prices reflect the success of Globalization in spreading prosperity. They also pose a threat to this prosperity by causing central banks, especially in emerging economies, to tighten their monetary policies in efforts to keep inflation rates from rising.
The riots in the Middle East have been sparked, in part, by widespread discontent over rising food and fuel prices. Governments around the world are likely to respond by hoarding food commodities. That would only exacerbate the inflationary pressures in the grain pits. Indeed, Friday’s FT reported that countries in North Africa and the Middle East have been accelerating their purchases of wheat recently. On the other hand, the Saudis may respond to the upheaval in their neighborhood by pumping more oil in a desperate attempt to relieve the inflationary pressures that are sparking social and political instability on a global basis.