Global Economies and the Price of Vegetables

by: Global Investing Editor

Yesterday, Chile’s central bank raised its overnight interest rate for a sixth month to 3% as accelerating economic growth threatens to push inflation beyond policy makers’ 2011 target of 3%. The 5th largest Latin American economy is firing on all cylinders, with exports up thanks to Chinese demand for copper. And domestic consumption is also booming, so the Chilean economy is growing by 6.5% a year.

Similarly, the Korean Central Bank raised interest rates 0.25%, also because of fear of inflation. The new rate is 2.5%.

Meanwhile in China, food prices again rose sharply at the start of November. The average price of 18 staple vegetables rose 62.4% year over year according to the Ministry of Commerce. This signals the likelihood of more government measures to combat inflation. The rise in the price of the vegetable basket will also lead to subsidies for poor Chinese shoppers by the Ministry, experts expect. Fed by the kimche crisis in Korea, Chinese shoppers are now paying 10x as much for a head of cabbage (bok choi) as a year ago. Other pricey foods are garlic and ginger, both near double year-ago levels.

Other countries are planning capital controls and taxes on foreign bond-buyers like what Brazil recently imposed. Analysts expect Malaysia to limit foreign investment inflows, a tactic used there in the past.