Cover of MoneyWeek magazine issue no 521

Asia's hidden gems

21 January 2011 / Issue 521

The best bets in emerging markets

PLUS:

  • Two British retail stocks to buy now
  • When will the cuts start to bite?
  • The man behind BP's Russian comeback

Excerpt

Inflation canary keels over

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 Sovereignman.com 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”.

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?

• Read the full editor’s letter here:
Inflation canary keels over

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