Bread prices explain the Arab Spring

Well, it\’s a cute theory, no doubt about that:

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It goes like this. QE II in the US has led to massively more money floating around the system, this has fed commodity price rises, one of which is wheat, the staple food in much of the Arab world is bread, thus rising bread prices, caused by Ben Bernanke, have led to the Arab Spring.

It\’s certainly a cute theory.

It fails on one rather important point though. There is no direct linkage between the international price of wheat and the domestic price of bread. Take those two outliers on that chart. Jordan and Egypt. Both massively subsidise the cost of bread. Import the wheat at world prices, yes, but sell the flour at subsidised ones, subsidised prices which this time around (but the system did break in 2008, as in the chart) haven\’t budged:

Egypt is a poor country. But many of its poorest citizens haven\’t felt the brunt of higher wheat prices, because a massive government subsidy program provides bread for the poor, Abbassian said.

That program broke down in 2007 and 2008, the last time wheat prices spiked. \”Bakers receiving subsidized wheat were selling it onto the open market,\” Abbassian said. \”The result of this imbalance was a lot of tension and violence.\”

Something apparently changed after that, Abbassian said, because there was little sign of those tensions in recent months, as wheat prices rose again. That suggests the subsidy program continued to function.

Bottom line, according to Abbassian: These protests aren\’t about the price of wheat.

Sure, international wheat prices have cocked the Egyptian Government\’s acounts even more than normal, but as we\’ve not seen soaring bread prices, soaring bread prices cannot be the cause of the riots and or regime change.

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