Soaring commodity price has become a major problem in many countries. When poor people are readjusting their monthly budget to address this price hike, shortage are taking place quite often. Even in Bangladesh, the lines for TCB trucks (subsidized government selling points) are getting bigger and bigger every day. The problem became more severe in past couple of days as Indonesia suddenly imposed ban on Soybean oil resulting in a record Soybean oil price in the history of the country. Within only one year, Soybean oil price has reached to 198 Taka from 135 Taka in Bangladesh. At present the current inflation rate is 6.22% officially while SANEM claimed it to be around 12%.
However, Bangladesh is not an isolated case of soaring commodity price at this moment. It seems inflation has emerged as a global problem affecting most economies. In the era of globalization and interconnectedness, this global inflation is posing a severe threat to our interdependence as it is a product of our reckless decisions, war, pandemic, and superpower rivalries.
Complex Interdependence (CI) is a concept of International Relations and International Political Economy. Simply, it is the complex web of economic dependence and relations among the states and institutions which creates a global economy. The concept was first introduced by Robert Keohane and Joseph Nye in the 1970s. The concept became more relevant in later decades when liberalism became the norm and transnational economy flourished through global value chain and global supply chain. Today, we are living in a world where societies and economies are interconnected beyond the borders.
However, though CI promised peace, it also brought weaknesses. Butterfly or ripple effects are becoming stronger than ever. One small change in the international market is affecting others directly or indirectly.
Return of Global Inflation
Inflation has become a global problem for sometimes now. Most countries are already bearing with this problem. Latest data around the world suggest that inflation rate is 8.5% in the USA, 7% in the UK, and 7.8% in the Eurozone in this year. Apart from country specific rates, the global rate is also growing drastically since last year. The current global inflation rate is 9.2% which has been doubled since the last year according to ILO’s statistics. As a result of growing inflation, commodity price has soared all over the world. Almost all commodity prices have soared to a highest level since 2008. By March 2022, global price of raw materials increased at the rate of 16%.The price of important raw materials such as Iron, Steel and Lithium increased by 243%, 250% and 98% than 2021. Since the Ukraine crisis, the oil price has also skyrocketed to more than $100 per barrel. The prediction for near future is also not rosy. The World Bank forecast is suggesting that energy price will soar over 50% in the coming days resulting in the largest commodity shock since the 1970.
However, the situation further worsened as edible oil price soared again due to Indonesia’s ban on export. Indonesia alone supplies 55% of world’s total palm oil while Malaysia is the second largest supplier with 30% stake. As Indonesia suddenly imposed ban on oil export, it has created a concern over global food price. The production of Soybean is also another issue to consider. Latin America is one of the largest producers of Soybean. But this year, the region failed to meet the expected production. As a result, Soybean oil price in Latin America has already reached to $1900 per metric ton by the last week of April- an all-time high in the history. As a consequence, Argentina halted export registration two months earlier, in March 2022.
However, this is not the first time; the price of Soybean is soaring. Since the trade war between the USA and China, the price of Soybean is increasing due to disruption in supply chain as the USA is the largest exporter of Soybean oil and China is the largest importer of it.
As a result of growing inflation, purchasing power of the common people around the world is decreasing. Longer lines in Dhaka’s TCB selling points are the evidences of this claim. Increasing living cost is also impacting saving rates around the world. By April 2022, savings rate in Eurozone dropped to 13.3%- a record low; the rate was 25% in the first quarter of 2020. Moreover, the latest Indian ban on wheat export will also pose new challenge to the livelihood of the common people. It is worthy of mentioning that India is the second largest wheat exporter.
Why it is happening?
The main reason behind this global inflation and commodity crisis is the disruption of supply chain caused by trade war, pandemic and ongoing Ukraine crisis. Though, the inflation has become visible after the pandemic and has been bolstered by the Ukraine crisis, the root of the problem dates back to the trade war between the USA and China in 2018. The trade war disrupted easy flow of goods around the world, creating a spike in price of necessary commodities. Later, lockdowns and restrictions disrupted supply chain for a long time. The stimulus packages and costly pandemic governance have further bolstered the challenges for governments around the world.
And lastly, the ongoing Ukraine war has ‘fanned’ the flames of global inflation. Both Ukraine and Russia are largest suppliers of many essential commodities. The war and sanctions has disrupted the production and supply of these commodities for uncertain times. The countries are suppliers of 12% of world’s total calories. They are also the major exporter of Sunflower oil, Wheat, and Maize. Russia is also one of the major energy suppliers to the world. As sanctions have cut its supply, shortage has also taken place in the market. As a result, in ripple effect coupling with shortage, the war is adversely affecting the international food market.
Why it is threat?
Liberal ideas came with the promises of better life, dignity, and rights. It also developed interconnected and interdependent economy for everyone promising affordability, availability, prosperity, and peace. But after 30 years, it seems this interconnectedness is heavily reliant on superpower’s behaviors while others are powerless. Superpowers’ reckless policies and rivalries are affecting all other countries.
As a result, this global inflation will create adverse notion about liberal thoughts. It will also create mistrust about the existing system and will compel states to pursue inward policies. The growing ‘export ban’ from various major exporters are evidence of pursuing inward policies. Most importantly, the inflation is putting extra burden of common citizens of the world who are struggling to maintain minimum standard of their life. As the inflation is boosting hunger, poverty, and inequality, it will push de-globalization and anti-globalization debate only. Therefore, it will pose a serious threat to interconnectedness.
Solving this global inflation will require time. Several forecasts suggest that the situation is likely to worsen in coming days with a commodity shock on the way. The only way to solve it is through cooperation between state, business, and related actors. Superpowers and hegemon must acknowledge their responsibilities and avoid reckless decisions that affect the others. In domestic aspect, vigilance against cartel businesses, breaking the monopolies, tax cuts, inclusive development, and strengthening institutions are required. And last but not least, in the age of interdependence, conflict is a costly thing to afford; so diplomacy should take precedence over brute force.