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Unit 1 Microeconomics
Curated by Peter Oldfield
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How Rice Tariffs May Force Colombian Central Bank to Raise Rates

How Rice Tariffs May Force Colombian Central Bank to Raise Rates | Market System | Scoop.it

  In a country where many people have rice for breakfast, lunch and dinner, Colombia’s protection of its rice farmers is miring many in poverty, according to former central bank co-director Leonardo Villar. It is also creating a headache for his successors at the bank.

Import barriers have enabled prices to soar to more than double world levels, helping push inflation to a six-year high and adding to pressure for steeper interest rates, said Villar, head of Fedesarrollo, a Bogota-based economics research group, who served on the central bank board from 1997 to 2009.

“If we persist with this excessive protectionism, and prices of rice and other foods aren’t allowed to correct downwards as they should, the price increases could become incorporated in expectations,” Villar said in a phone interview. “That could force an adjustment in the interest rate from the bank.”

 

Annual inflation reached its fastest pace since 2009 in March, led by a 37 percent jump in the cost of rice after farmers planted less last year amid forecasts of unfavorable weather. Central bank co-directors Ana Fernanda Maiguashca, Adolfo Meisel and Carlos Gustavo Cano have all signaled over the past month that they would consider raising interest rates if inflation expectations become “unanchored” from the 3 percent target.

With inflationary pressure mounting even as economic growth slows, Finance Minister Mauricio Cardenas says he is sympathetic to calls to ease import restrictions on rice.

Price ‘Fluctuations’

“With the price increases we’ve seen in the last few months, the sentiment we’ve seen in Colombia is that we need more competition,” Cardenas said in an April 19 interview in Washington. “We need more flexibility in terms of making sure that whenever these pressures emerge, we are ready to import to prevent such fluctuations in prices.”

Rafael Hernandez, head of the National Federation of Rice Growers, or Fedearroz, described Fedesarrollo’s analysis as “economists’ tales, but not reality.” It is unrealistic to speak of free trade when producers such as the U.S., Thailand and Vietnam subsidize their rice growers, he said.

“For the country to become competitive, and for the farmer to become more competitive, they require protection and state polices to improve competitiveness,” Hernandez said in an April 9 interview in his Bogota office. “To speak of a free market, when products are coming here with massive subsidies, to compete with poor farmers who don’t have enough support, that doesn’t seem to me to be just.”

‘Monumental’ Harvest

The U.S. is allowed to export a quota of about 90,000 metric tons of rice to Colombia this year, with this figure increasing by 4.5 percent annually. Above that amount, exports pay a duty of 80 percent.

Annual inflation accelerated to 4.56 percent in March, above the limit of the central bank’s target range of 2 percent to 4 percent. With its large weighting in the consumer basket, rice contributed more than any other product to the jump. Policy makers have repeatedly forecast that inflation will start to slow in the second half of the year.

The central bank left its policy rate unchanged at 4.5 percent at its board meeting April 24, as forecast by all of the 33 analysts surveyed by Bloomberg.

The pressure on inflation from rice prices may be about to ease. Cano, a former agriculture minister, said April 13 that a “monumental” harvest will cause rice prices to fall in July, August and September.

Inflation Expectations

Still, inflation expectations for 2016 rose for a second straight month in April, to 3.2 percent, in the central bank’s monthly survey of economists. Policy makers try to keep expected price increases “anchored” close to the inflation target, since these play a role in price-setting decisions and wage negotiations.

Rice accounts for about 14 percent of the calories consumed by Colombians, according to Fedearroz.

In a 2013 study, Fedesarrollo estimated that eliminating the gap between Colombian and international prices would lift more than 1.2 million people out of poverty, and more than 450,000 out of extreme poverty.

The “poverty line,” calculated using the consumer price index for low-income families, is about $80 per month.

A ton of white rice cost about 2.78 million pesos ($1,130) in Colombia in March, compared with $485 for a ton of rice in the U.S., according to data collected by Fedearroz.

“If rice in Colombia were at international prices, the levels of poverty would fall significantly, basically because it has such an important role in the family consumption basket,” Villar said.

Villar is a leading candidate to be Colombia’s next central bank chief after Governor Jose Dario Uribe leaves office at the end of next year, according to Munir Jalil, head analyst at Citigroup Inc.’s Colombia unit.


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Public Goods: Flood defence works in Morecambe due to begin

Public Goods: Flood defence works in Morecambe due to begin | Market System | Scoop.it
The first phase of a £10m flood defence scheme at a seaside town in Lancashire is due to begin.

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Demerit Gods: Jamie slaps 10p sugar tax on all sweet drinks at his restaurants

Demerit Gods: Jamie slaps 10p sugar tax on all sweet drinks at his restaurants | Market System | Scoop.it
Celebrity chef Jamie Oliver is to slap a 'sugar tax' on all sweet drinks served in his restaurants as a protest at the government's refusal to introduce one.

Via Matt Smith
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Cameron Beck's curator insight, December 1, 6:42 AM

Obesity is a form of market failure. With more and more people using the NHS due to being overweight it is costly for the government and the problem needs to be solved. By Jamie Oliver introducing the sugar tax it reduces the incentive for consumers to buy sugary drinks. This price increase can deter the consumer solving the problem in theory. However Jamie Oliver's Restaurant being a higher end restaurant means that this tax is unlikely to effect the consumer.   

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Demerit Goods: Video game use linked to worse GCSEs, study suggests

Demerit Goods: Video game use linked to worse GCSEs, study suggests | Market System | Scoop.it
Children who play video games twice a day are less likely to achieve five good GCSE grades, a study suggests.

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Bruce Fellowes's curator insight, November 15, 2015 7:39 AM

This is quite topical. A number of students missed a day of College recently due to the new Call of Duty computer game!

Dan Martin's curator insight, November 18, 2015 4:34 PM

This is an interesting story! I wonder if anyone has ever done a survey of attendance following the release of the latest FIFA game???

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Alcohol limits cut to reduce health risks - BBC News

Alcohol limits cut to reduce health risks - BBC News | Market System | Scoop.it
The first full guidelines issued on alcohol for 20 years cut recommended drinking limits and say that any amount of alcohol carries a risk to your health.

Via Matt Smith
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Price discrimination: The price of being female

Price discrimination: The price of being female | Market System | Scoop.it
The price of being female

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Geoff Riley's curator insight, January 20, 5:00 AM

Tim Harford explores the issue of gender pricing differentials - effectively in many cases a form of price discrimination. 

Anass's curator insight, January 25, 6:21 AM

As soon as I saw 'the price of being female', I found it interesting. I was confused for a second, but then I thought of what it meant for a second.

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Microeconomic news for A-level students

Microeconomic news for A-level students | Market System | Scoop.it
News articles of interest to A-level microeconomic students. Ideas for discussion.
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The Fragile Five

The Fragile Five | Market System | Scoop.it
While an end to the Fed's economic stimulus could mean a return to normality in the US, it could have serious ramifications for five large emerging economies.
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ECONOMICS BLOG POST ASSIGNMENT #1 (Minimum price ...

ECONOMICS BLOG POST ASSIGNMENT #1 (Minimum price ... | Market System | Scoop.it

Usually the consumers would respond by reducing the quantity they demand to QD. The government would need to buy the excess supply, or else, the price would just drop back to PE, or even below in the equilibrium price, ...

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Unit 4 Macro: FDI in Africa

Unit 4 Macro: FDI in Africa | Market System | Scoop.it
Revision blog on the economics of foreign direct investment in Africa with a special focus on investment from China and other BRIC countries. ... Higher profits and a stronger position and market access in global markets; Reduced technological ...

Via Martin Ward
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New Bank of England head Mark Carney hints at big shift in policy

New Bank of England head Mark Carney hints at big shift in policy | Market System | Scoop.it

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A2 Macro - Economic Development in action? China - A house divided: The fight to solve inequality

A2 Macro - Economic Development in action? China - A house divided: The fight to solve inequality | Market System | Scoop.it
LAST month China’s National Bureau of Statistics reported that inequality in China is slowly narrowing. But public outrage over unearned privilege is still...
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Sugar tax backed by health chiefs

Sugar tax backed by health chiefs | Market System | Scoop.it
Public health chiefs advise the health secretary to introduce a sugar tax as part of a range of measures to tackle child obesity.

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Negative Externalities: Traffic Congestion to Cost the UK Economy More Than £300 Billion Over the Next 16 Years

Negative Externalities: Traffic Congestion to Cost the UK Economy More Than £300 Billion Over the Next 16 Years | Market System | Scoop.it
Study from INRIX and the Centre for Economics and Business Research Predicts Annual Cost of Congestion in the UK will Rise 63 Percent by 2030 to £21 Billion Read More >

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Negative Externalities: Leicester MP Keith Vaz urges Coca-Cola Christmas truck tour to avoid city

Negative Externalities: Leicester MP Keith Vaz urges Coca-Cola Christmas truck tour to avoid city | Market System | Scoop.it
A diabetic MP asks Coca-Cola not to bring its Christmas truck to Leicester, accusing the company of marketing a "real health hazard".

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Government Failure: Plastic bag charge: the unintended consequences of the 5p deterrent

Government Failure: Plastic bag charge: the unintended consequences of the 5p deterrent | Market System | Scoop.it
Government's 5p plastic bag charge could make us less healthy, increase landfill waste, and threaten jobs

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Why is the pound falling so sharply? - BBC News

Why is the pound falling so sharply? - BBC News | Market System | Scoop.it
The value of the pound has been sliding on international currency markets, declining nearly 4% since the start of 2016.

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Latest financial, market & economic news and analysis | Business | The Guardian

Latest financial, market & economic news and analysis | Business | The Guardian | Market System | Scoop.it
Latest financial, market & economic news and analysis from The Guardian
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Experts Demand Drastic Cuts In Added Sugar

Experts Demand Drastic Cuts In Added Sugar | Market System | Scoop.it
A pressure group says flavoured water, yoghurts, ketchup, ready meals and bread are among the everyday foods loaded with sugar.
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Royal Mail 'worth up to £3.3bn'

Royal Mail 'worth up to £3.3bn' | Market System | Scoop.it
Royal Mail is to be valued at between £2.6bn and £3.3bn, as further details of the Royal Mail's privatisation plan are issued by the government.
Peter Oldfield's insight:

But will it increase efficiency?

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China 'can't be free rider on trade'

China 'can't be free rider on trade' | Market System | Scoop.it

China cannot be a "free rider" when it comes to global trade, the EU's trade commissioner, Karel De Gucht, warns.


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What if Africa were to become the hub for global science?

What if Africa were to become the hub for global science? | Market System | Scoop.it
Julian Siddle from the BBC's Radio Science Unit examines the potential for sub-Saharan Africa to be a future destination for world-class science.

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Geoff Riley's curator insight, April 5, 2013 5:28 AM

A deeply optimistic piece which stresses the low base of higher education opportunities in Africa at the moment but which reveals the potential of cross country collaboration and the gains that will come from reversing the brain drain. A great example to use when discussing human capital and long-term development.

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Unit 4 Macro: FDI in Africa

Unit 4 Macro: FDI in Africa | Market System | Scoop.it
Revision blog on the economics of foreign direct investment in Africa with a special focus on investment from China and other BRIC countries.

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Haileybury Economics's curator insight, April 1, 2013 5:25 AM

Useful resource for FDI in Africa

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What is a currency war and are we heading for one?

What is a currency war and are we heading for one? | Market System | Scoop.it

As the Finance Ministers of the 20 biggest economies meet in Moscow, a discussion about the valuation of currencies is likely to he high on the agenda.


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