Badawi : We Will Produce More Rice.

Inflation concerns continue to mount. You can feel the civil unrest percolating and it looks as if full blown strikes and riots will become a norm.

Countries, such as, Mexico, Russia, South Africa and Yemen are all experiencing unrest as the very staples of life have become suddenly unaffordable. Food prices in South Africa are now up 70% from a year ago. At the same time the rand is down 15%. And with the recent power outages, it looks as if electricity costs are set to explode, adding fuel to the fire. Some say electricity prices could increase as much as 50-60% in 2008-09. -So, watch your TENAGA bills! This would be a double whammy and will be sure to maintain inflation in the double figures.

Soaring export taxes on the crops in Argentina recently have lead to rebellious strikes by the farmers. As a consequence, produce and beef are missing from the shelves in the grocery store. Empty shelves make people angry. And Soybean futures hit the roof in CBOT.

This upshot of rising food prices is already being felt in China. Rice is a staple in China and most of Asia and prices have more than doubled. In fact, a quick glance at the Chicago Board of Trade Rough Rice chart rice prices making new high as I write. Just in a week, rice prices are up another 11.5%, as Vietnam has banned export of rice on domestic shortages.

Civil unrest is possible as people in China are eating more rice than is being produced. To counter the effects of higher inflation the government continues to raise the cost of borrowing and imposing price controls on food. Folks in Mexico are in an uproar as the price of corn tortillas goes up. Corn prices are tickling the $6 per bushel level. And the chart is wildly bullish.

We've had a series of higher lows on the monthly chart since August 2007. At the same time, world stocks continue to dwindle. The stocks-to-usage ratio is currently at 13.5%, the lowest since 1973-74. That’s considered a tight market. Remember too, the crop is not even in the ground. A hot, dry summer could be devastating.

Meanwhile, Singapore just registered a 25 year high in inflation. Saudi Arabia is now at 16 year highs and Switzerland is not far behind, at 14 year highs....and Malaysia still in its lala-bolehland! Since Bank Negara is led by the nose, don't expect any surprises coming from cosmetically tame inflation data. And I guess Zeti's measures to counter "significant downturn" is now useless after March 8, 2008!

While commodity prices may consolidate and trade in big ranges for the next few months, the big picture still looks supportive for natural resource plays.