China, India and Brazil are stepping up the pace of economic activity as Western economies trail further and further behind. The emerging nations are now calling the shots and setting the prices on the world market. The upshot, an across-the-board inflationary trend, couldn’t have come at a worse time for the struggling West, which may now face the double-whammy of throttled growth and rampant inflation.

The prices of commodities – cotton, sugar, rubber et al – have been steadily mounting for months. But only now that the price of oil is welling up too – oil being the queen of commodities, with the most direct impact on the overall economy – is the West finally sounding the alarm. Crude oil is up to around $90 a barrel in the US and verging on $95 in Europe, over $15 more than it was a year ago. That’s dangerously close to the $100 mark, which many regard as the psychological threshold beyond which the vicious circle of financial speculation will set in, thanks to abundant liquidity made available by the now flush central banks. Which is what happened in 2008, when the barrel shot up to $140.

The OECD’s International Energy Agency (IEA) warnsthat this latest upturn in oil prices is already taking a heavy toll on the most developed economies. The bill the 34 OECD countries pay to the oil-exporting nations jumped $200bn in 2010 to nearly $800bn: in other words, the rich countries spent one third more on imported crude oil last year than in 2009. In fact, according to the IAE, they sacrificed half a GDP point to the oil sheiks at a time when the GDP is struggling to pick up again. At this rate, they’re headed straight to the brink of a recession. “The oil import bills are becoming a threat to the economic recovery,” warns chief IEA economist Fatih Birol. “This is a wake-up call to the oil consuming countries and to the oil producers” – which have rejected the calls on OPEC in recent weeks to increase production.

In 2011 Europe might lose its shirt

The price of crude is an unknown quantity that casts a long shadow on the economic forecast for the years to come, and yet it’s only the biggest cloud looming on the horizon. Almost all commodities are going up in price – starting with food. A new food crisis, like that of 2007–2008, is not in the immediate offing because stocks are fairly plentiful for the time being. But the effects on prices are already much in evidence. The UN Food and Agriculture Organisation’s (FAO)food price index shot up 4.2% in a single month in November 2010. It is already higher than in 2008, driven up by increased wheat, sugar and meat prices. Likewise the price of cotton, for instance, which has hit a new all-time high.

What is happening in the world markets bodes ill for consumers in 2011, especially in the West. Smack in the middle of a phase of high unemployment and stagnating income, it is going to be raining markups, including the prices of petrol at the pumps and natural gas for heating (which is tied to the price of petrol in Europe). Big distributors are already warning retailers that virtually everything – from meat and bread to blue jeans – is going to cost more. And that will put a dent in household and national budgets.

A flurry of markups means a new round of inflation. December prices in the eurozone were 2.2% up on the year before, which was a lot more than expected – and above the 2% threshold the European Central Bank was hoping not to exceed. Under different circumstances, the ECB would have already raised interest rates to keep prices down. It hasn’t done so lest it stifle the recovery (which has been pretty meagre at best except in Germany), but probably more to the point because a rise in interest rates would make it even harder and more costly to finance public debt in the weaker eurozone economies, i.e. Greece, Spain, Belgium and Italy. Still, if inflation doesn’t stop going up, the Germans will insist that the ECB increase interest rates. So in 2011, in a nutshell, Europe might not only lose its new shirt, it might be pushed to the brink of another financial and political crisis.

Translated from the Italian by Eric Rosencrantz