Inflation canary keels over

The West's orgy of monetary stimulus of the last few years is fuelling hyper-inflation in some unlikely places.

If you'd asked a banker in Israel in 1970 if he thought he'd be seeing inflation at 100% within a decade, he'd have laughed you out of the room. Yet by 1980 it had hit 191% and by 1984 prices were rising at an annual rate of 445%.

The banker would have been shocked. But open-minded economic historians wouldn't have been so surprised. Why? Because hyperinflation isn't unusual. It happened in Argentina in the 1970s and 1980s; in Brazil between 1986 and 1994; in Bulgaria in 1996; in Poland in 1989; in China in the 1940s; in Turkey during the 1990s; in Georgia in 1994; in Greece in 1944; and, of course, in Zimbabwe until very recently. And it is happening even now.

Indeed, Simon Black of notes that things are going horribly wrong in Laos. It is, he says a "small landlocked economy in southeast Asia that is often overlooked in favour of its neighbours". But it's "the canary in the coal mine" when it comes to inflation. Laos has vast resources, being "home to some of the most fertile land in the world" and a relatively small population. Yet the price of staple foods has "soared in recent months".

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This isn't about food shortages there aren't any in Laos. "The price hikes are simply another indicator of monetary inflation causing severe price inflation." The trillions in new currency units being "compulsively manufactured" by Western central bankers are finding their way into Laos just as they are into most other economies.

So what next? Here's the worrying bit. The government in Laos has agreed in principle to raise the minimum wage. The amount is as yet undecided but Black suggests it might go up by 40% or so. That would make it double its 2009 levels. The minimum wage in Laos is low (under $70 a month), but that doesn't mean this doesn't matter: once wages start to chase prices you enter the kind of wage spiral that always ends badly.

You think it can't happen here. Maybe it can't. But we have a relatively weak, short-termist government both here and in the US our politicians are more concerned about popularity than sustainability. Due to the orgy of monetary stimulus of the last few years, the integrity of our fiat money supply is already being undermined pretty quickly. It doesn't take much for confidence in a currency to disappear or, with the UK Retail Price Index at 4.8% and interest rates at 0.5%, for inflation expectations (and hence wage demands) to soar.

So I'm taking Laos as a warning and I'm keeping a very close eye on UK wages. I'm also noting with interest that at 3.7% the Consumer Price Index in Britain is now higher than it is in Zimbabwe (3.2%).

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.