Blog
Egypt and the root causes of the unrest
4th February 2011
Scratch the surface and it seems the root cause of the political unrest taking place in Egypt and threatening the stability of the whole region lies with the rising price of food and energy. There are various causes of this inflation which have been blogged about on this site from the floods in Australia and other supply side factors driving up global commodity prices, China’s demand for oil and more recently the effects on the price of oil from the unrest in Egypt. The UN Food Price Index below and found here shows that the price of food is higher now than the food crisis of July 2008.
This article from the WSJ, discusses the link between the riots and the price rises:
“Rising prices for food, energy and other commodities are reducing the disposable incomes of poor people across the planet, providing a trigger for street protests in North Africa and posing a deep conundrum for policy makers world-wide.”
Western countries are not exempt from these effects either, “though the phenomenon hits the hardest in poor countries, where people spend most of their incomes on food and to a lesser extent energy, it is also a worry in countries such as the U.K.” where slow growth and high inflation “raises the spectre of stagflation.”
Food takes up a significant proportion of Egypt’s CPI (see chart found below and here) so as agflation bites people suffer and as food takes up a higher proportion of lower incomes, the poor suffer even more.
This pattern is not unique to poorer countries. The chart below illustrates how the lower income groups in the U.S. really get squeezed when food and gas prices rise.
Inflation appears to be a global problem and the fear of stagflation looms, pressure is on policy-makers to do something about it. Martin Weale of the MPC has argued for higher interest rates to combat increasing expectations of inflation and there is evidence to suggest that these price increases are becoming a self-fulfilling prophesy (Companies Stock Up as Commodities Prices Rise). Worrying times ahead and these events highlight the fact that the root of many of the world’s problems are economic in nature.