The U.S. dollar is weak, at $1.42 to the Euro; oil prices are rising, at $86 a barrel; the gold price is rising, at $756 an ounce. These are all signs that the risk of global inflation, the scourge of the 1970s, is rising again.
In The Daily Telegraph for Monday, October 15th, Ambrose Evans Prichard, who is very good at identifying financial storm clouds before they burst over our heads, gives an alarming list of the expansion of money supply in a number of different countries.
“Money is expanding at 18 per cent in Saudi Arabia, 19 per cent in China, 24 per cent in India, 36 per cent in the United Arab Emirates, 41 per cent in Russia, and 69 per cent in Venezuela. With the usual lag, inflation has at last hit. Prices are rising at 9 per cent in Russia, 11 per cent in the UAE and 12 per cent in Qatar, to name but a few.”
As Milton Friedman used to remind us, global inflation is invariably a monetary phenomenon, but, when one has said that, it is still a phenomenon subject to external shocks and to long and unpredictable time lags. We can be confident that the 69 per cent rate of growth in the money supply of Venezuela will in due course lead to further acceleration in Venezuela’s rate of inflation. Indeed, there is already the sinister sign that President Hugo Chavez is taking control of the Central Bank. But we do not know exactly what rate Venezuelan inflation will have reached in one or two years’ time. There are too many variables.