The Briefing Room
General Category => Economy/Business => Topic started by: Rapunzel on March 15, 2014, 04:43:34 am
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http://www.breitbart.com/Big-Government/2014/03/13/Food-Price-Inflation-Scares-The-Fed
Food Price Inflation Scares the Fed
by Chriss W. Street 14 Mar 2014, 2:12 PM PDT
Stock markets around the world fell Thursday, led by the 246 point dive, or 1.5%, for the U.S. Dow Jones Industrial Average and a 1.9% drop for German stock market index. Analysts generally pointed to worries about shrinking Chinese lending and the potential trade war between Russia and the West, but I am more concerned that since the beginning of 2014 food prices have skyrocketed.
The Federal Reserve must be concerned that international support for “cheap money policies” to stimulate economic growth may be funding commodity speculation that is driving prices higher and creating widespread misery. If the Fed decides to raise interest rates to dampen speculation, I believe stock and commodity prices are in for a hard fall.
Margin debt on stocks is now higher than at its last peak in 2008, right before the stock and commodity markets crashed. This willingness to speculate on margin may also explain the big jump in food prices since the first of the year as shown below:
Cattle Hogs Grains Milk Coffee
+28% +25% 14% +17% +67%
Over the next couple of months, the rise in wholesale commodity prices is going to start hitting consumer pocketbooks very hard. More worrisome, the rising price action will encourage more commodity futures speculators to jump in and continue the rapid price escalation. If the Fed does not get ahead of this coming tsunami of greed, it will be in a similar situation as when food prices took off in 2008.
In April of 2008, the International Monetary Fund (IMF) warned that rising food prices could have terrible consequences for the world, including the risk of war. IMF Managing Director Dominique Strauss-Kahn called for action to keep inflation in check: "Food prices, if they go on like they are doing today... the consequences will be terrible."
"Hundreds of thousands of people will be starving," she said, “...(leading) to disruption of the economic environment,” especially for developing nations where the bulk of their income is spent on the bare necessities for survival.
Strauss-Kahn emphasized food inflation could destroy ten years of development progress and spark social unrest: “As we know, learning from the past, those kind of questions sometimes end in war.”
It is well known that the Great Credit Crunch of 2008 and the Great Recession that followed was caused by a build-up of speculative borrowing and investing after the 9/11 terrorist attack. What is not very well understood is that the Fed was forced to stop cutting interest rates during the financial crisis because of raging food-price inflation
The economic impacts of 9/11 threatened to drive America into a deep recession. Federal Reserve Chairman Alan Greenspan began deeply cutting interest rates on September 17, 2001, which made it increasingly cheaper to borrow money. The cheap money policy led to strong growth, especially in the interest-sensitive housing sector as Americans started taking on more and more debt and stock and commodity investors took on more leverage.
Despite inflation picking up, the Fed waited until 2004 to begin raising rates. Although the Fed moved up rates through 2005, investor frenzy continued as sub-prime lenders in 2006 actually increased the amount of money flowing to speculative investors.
As the economy slowed rapidly in mid-2007, the Fed began slowly cutting rates. After Bear Stearns filed for bankruptcy on March 31, 2008, the Fed started cutting rates faster. However, as the result of their experience with the stimulus features of 9/11 “cheap money policies,” speculators increased borrowing to buy more stocks and commodities on margin. The buying pressure sent food costs up over 30% and resulted in panic cries from the IMF and poor countries around the world for the Fed to stop driving up inflation and food prices by cutting interest rates.
From April through August the Fed held its lending rate steady. However, on September 15, 2008 the huge brokerage firm Lehman Brothers filed for bankruptcy. Over the next year, numerous financial institutions declared bankruptcy. Even major banks such as J.P. Morgan, Bank of America, and Citibank were all pushed to the brink. The cascading failures eventually culminated in the Fed’s bailout of AIG and the government’s nationalization of Fannie Mae and Freddie Mac.
There will always be international controversies that analysts try to associate with price movements in the stock markets, but seldom have international events had more than a temporary impact. The banking problems in China are significant and the Ukraine Crisis has increased international tension. However, if its “cheap money policies” are now funding speculators that are driving up food prices, the Federal Reserve is going to curb lending and drive up interest rates. Having failed to be vigilant against food inflation during the last economic crisis, the Federal Reserve may over-react this time.
The author welcomes feedback @ chriss@chrissstreetandcompany.com. Chriss Street is teaching microeconomics at University of California, Irvine this spring from March 31 – June 8, 2014. Call Student Services at (949) 824-5414 or visit http://unex.uci.edu/courses to enroll!
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No worries. Mooch says, "Let them eat arugula."
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No worries. Mooch says, "Let them eat arugula."
Of course, this is the kind of stuff that makes economists act like inflation isn't happening. "Core" inflation, they argue, doesn't include food.
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You can see it happening week to week in grocery stores...two bags can easily top $100, and will routinely be $50 +
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You can see it happening week to week in grocery stores...two bags can easily top $100, and will routinely be $50 +
Yup.......
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You can see it happening week to week in grocery stores...two bags can easily top $100, and will routinely be $50 +
I've been watching the grocery bills going up for at least a few years. I try to get stuff on sale and buy ahead and all of that, but it still amazes me how the total just keeps going up and up!! And if that article I read the other day about the incredible spike in commodities since the beginning of the year is true, watch out in a month or two..... beef, pork, coffee, etc. UP, UP, UP!!
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You can see it in other ways as well: I went to the store to buy a bag of sugar - which I don't do very often - and thought that I couldn't find the bag I usually get - the 5 pound bag - until I suddenly realized that all the regular size bags were now 4 pounds, not 5.
Selling 4 pounds for the price of 5 pounds is just another way of hiding the fact of inflation, at least from those who don't look more carefully at what they're buying.
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You can see it in other ways as well: I went to the store to buy a bag of sugar - which I don't do very often - and thought that I couldn't find the bag I usually get - the 5 pound bag - until I suddenly realized that all the regular size bags were now 4 pounds, not 5.
Selling 4 pounds for the price of 5 pounds is just another way of hiding the fact of inflation, at least from those who don't look more carefully at what they're buying.
This way of masking the price has been used extensively for a few years now...to the point where you see it in, I dare say, most non-produce or meat grocery products...it is the exception to find it not in use.
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This way of masking the price has been used extensively for a few years now...to the point where you see it in, I dare say, most non-produce or meat grocery products...it is the exception to find it not in use.
Yes, almost everything is now a smaller package for close to the same "old" price.
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Yes, almost everything is now a smaller package for close to the same "old" price.
It started with Hershey bars several years ago, which used to be one ounce for a nickel; now just a fraction of an ounce for about 89 cents. Then coffee, which used to come in one pound cans, appeared in 13 oz. cans, and so it went ... **nononono*
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It started with Hershey bars several years ago, which used to be one ounce for a nickel; now just a fraction of an ounce for about 89 cents. Then coffee, which used to come in one pound cans, appeared in 13 oz. cans, and so it went ... **nononono*
I know!! The coffee packaging is getting insane, I wonder what they will do if coffee spikes in a couple of months like I saw predicted?? 6 oz. plastic jar for for $7.99??
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That's illegal here - at least for foodstuffs (not chocolate or crisps)
You go in to any store and they have to give you the price per kilo or price per 100 grams on the shelf label. Makes it easier to see food is skyrocketing without having to keep years of receipts.
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That's illegal here - at least for foodstuffs (not chocolate or crisps)
You go in to any store and they have to give you the price per kilo or price per 100 grams on the shelf label. Makes it easier to see food is skyrocketing without having to keep years of receipts.
We do have the "unit pricing" labels on the shelves that show the price per pound/ounce/etc. But the actual products' price is the misleading part as the price stays somewhat close to what we've expected for some time, but the quantity just plummets. A normal box of crackers seems to have shrunk down to what used to be a "travel" or "personal" size!! It is really unbelievable....
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• Beef. The average retail cost of fresh beef last month was $5.28 a pound, up from $5.04 in January and the highest on records dating to 1987, according to the Agriculture Department and Sterling Marketing. Midwest ranchers thinned their cattle herds after droughts in 2011 and 2012 shrank pastures, says Sterling owner John Nalivka.
Other factors include small ranchers that shut down during and after the 2007-09 recession. There are now about 88 million head of cattle in the U.S., the smallest herd since 1951. Thus far, retailers have absorbed the bulk of a 22% beef price increase the past year, but Nalivka expects retailers to pass more costs to consumers this year.
• Pork. Retail pork prices rose 6.8% in the past year to an average $3.73 a pound in February as beef shoppers turned to cheaper pork options. But a virus outbreak since last April has killed about 6 million pigs, reducing the national herd by nearly 10%, estimates Steve Meyer, president of Paragon Economics. He expects the smaller inventory to boost per-pound prices to $4 by summer.
• Poultry. More expensive beef and pork have prompted some shoppers to buy chicken and turkey. Poultry prices increased 4.7% last year, the Agriculture Department says.
• Milk. The average price of a gallon of milk was $3.56 last month, up from $3.46 in October. The main reason: a surge in exports to China and other Asian nations, says Knox Jones of consulting firm Advanced Economic Solutions. Retailers have been hit by a 36% wholesale price increase since December, and Jones says per-gallon retail prices could rise another 25 cents to 50 cents this year.
• Fruits and vegetables. Unusually cold weather in California and a "citrus greening" disease in Florida have damaged citrus crops. Orange prices increased 3.4% last month, and strawberry prices are up 12% vs. a year ago. Analyst Michael Swanson says prices for other fruits and vegetables could spike this year, depending on the damage caused by California's drought.
http://www.usatoday.com/story/money/business/2014/03/18/food-prices-rising/6557417/ (http://www.usatoday.com/story/money/business/2014/03/18/food-prices-rising/6557417/)
I priced a pot roast (a little one for two) it was $23. I thought it was a misprint. Nowadays buying fresh fish/seafood is cheaper.
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The only time I feel like I can afford to buy beef anymore is from the greatly reduced "last day" bin at the end of the meat cooler (usually the day before the "buy by" date), then I either freeze it or cook it immediately.
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There is more than one way to slim down the proles.
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Of course, this is the kind of stuff that makes economists act like inflation isn't happening. "Core" inflation, they argue, doesn't include food.
It excludes fuel prices, too, which in Michigan have been rising steadily.
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It excludes fuel prices, too, which in Michigan have been rising steadily.
Same here - up 15 cents or so in the past few weeks.
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The kids got me a Food Saver a couple years ago for Christmas. I buy meat when it is on sale or at reduced prices, and vacuum it, then seal it. Hamburger is nuts, $4 per pound for 73% beef. $5 for 80%, and it goes up from there. Bacon is in 12 oz. pkgs, and costs more than 1 lb. pkgs used to. Milk in plastic cartons can be frozen, too, for later use.
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I'll sure be happy when our farmers market opens in may. The big thing to me is food and gas are not factors in COLAs.
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That's illegal here - at least for foodstuffs (not chocolate or crisps)
You go in to any store and they have to give you the price per kilo or price per 100 grams on the shelf label. Makes it easier to see food is skyrocketing without having to keep years of receipts.
That price is given in most stores. But just like you can lead a horse to water, but cannot make it drink, just because you put the unit price up doesn't mean anyone - other than codgers like me - are going to pay any attention to it.