The Great Depression Online




Great Depression Online Archive Issue:

200 Percent Price Hike for Bread 

Inside This Issue You Will Discover…

*** 200 Percent Price Hike for Bread
*** Price Controls and Empty Bread Racks
*** The Natural Rhythms of the Market Place
*** And More

200 Percent Price Hike for Bread

Zimbabwe’s government has allowed bakers to increase the price of a loaf of bread by more than 200 percent”, begins an AFP story that we came across on Yahoo News on Sunday October 14, 2007.

We find several things about this sentence to be truly remarkable…

Why is the government controlling the prices of bread?

And how did they know that a 200 percent price increase would be appropriate?

Back to the story…

“A senior manager from one of the country’s leading bakeries, Lobels, who demanded anonymity, told AFP that the government approved the hikes late Friday.

“He was confirming a report by the state-run Sunday Mail newspaper which quoted a letter from the National Incomes and Pricing Commission (NICP) to bakers, saying that it has approved a hike in the price of a standard loaf of bread from 30,000 Zimbabwe dollars (one U.S. dollar) to 100,000 dollars (3.3 U.S. dollars).

“’The National Incomes and Pricing Commission has given the go-ahead to the bakers’ association to sell bread at the new approved prices,’ read part of the letter quoted by the newspaper.”

Here we’ll interrupt again to ask…  How did the National Incomes and Pricing Commission determine the new approved prices?

Price Controls and Empty Bread Racks

Price controls have never worked.  In fact, they’ve always make an economy worse.  Problems like this happen…

“Bread racks in most shops have been bare while in some cases deliveries were erratic after President Robert Mugabe’s government launched Operation Dzikisa Mutengo (Reduced Prices) in June, forcing shops and business to have their prices.”

It doesn’t take a genius to figure out that if you’re a baker, and the government forces you to sell bread for less than it costs you to make it, it becomes a losing proposition.  So why bother when you save money by doing nothing?

Lastly the story ends with…  “The government, which is trying to rein in an annual inflation rate which currently stands at more than 6,500 percent, approved other rises last week.”

As you know price inflation of this sort is the direct result of printing paper money.

Here the government created this problem by printing too much money.  Then when price inflation took off, they instituted price controls.  As a result, bakers stopped baking bread because they could no longer earn a living doing so.  To attempt to correct the problem of its own making the government then approves a 200 percent price hike for bread.

The Natural Rhythms of the Market Place

We don’t pretend to think we know what the price of bread should cost.  We prefer to leave such decisions to the natural rhythms of the market place.  But in an environment where annual inflation is running at 6,500 percent, if we were trying to earn a living as a baker, we imagine we’d find a government approved 200 percent increase rather maddening.

We brought you this story to highlight the fact that hyperinflation does still occur when the money supply is increased beyond what the economy can naturally support. 

We recognize that the United States has a much more sophisticated financial system than Zimbabwe, but that doesn’t mean that the same rules of nature don’t apply.

How long can the Federal Reserve keep injecting liquidity into the system before things get out of control?  We don’t know, but the dollars credibility is certainly in question.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  If you’re concerned about the rising cost of food and energy, it could get much worse.  One way to beat inflation and amass a fortune is through investing in ETFs.  We don’t know much about ETFs, and we don’t pretend to, but our friends over at The ETF Authority have this market cornered.  Take a look: http://www.streetauthority.com/etf-sample.asp?aid=168896

 

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