World Bank President Robert Zoellick rang the alarm bell in a speech yesterday. He noted that since 2005, the prices of staples have risen 80 per cent. The real price of rice rose to a 19-year high last month, he said, while the real price of wheat hit a 28-year high.

Zoellick warned that this inflation is having political repercussions: “The World Bank Group estimates that 33 countries around the world face potential political and social unrest because of the acute hike in food and energy prices.” To cope with the topsy-turvy economy, Zoellick made an innovative proposal that countries running a surplus, such as Saudi Arabia and China, devote 1 per cent of their ‘sovereign wealth’ funds to investment in Africa’s poor countries. That could yield up to $30 billion in development spending.

Now, cut to the Federal Reserve. At a time when global inflation is raging, you might expect that the central bank’s first priority would be to dampen inflationary expectations in the United States. But because of its worries about a financial meltdown, the Fed has been doing the opposite — drastically cutting interest rates in an effort to unclog the financial markets. The cheap money didn’t stop the Wall Street bank run — it was the Fed’s bold plan to absorb subprime debt that did that — but it may well add fuel to the inflation fire.

I spoke this week to Richard W. Fisher, the president of the Dallas Federal Reserve Bank and the leading inflation hawk on the Fed’s Open Market Committee. He opposed the last two rate cuts, arguing that they could boost inflation without easing the financial mess. Fisher sees the booming Asian economies creating a classic “demand-pull” inflation that is propelled by 3 billion new participants in the global economy who, he says, “want to eat like you, dress like you, live like you.”

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