Sunday, February 01, 2009

Incoming crisis: Food prices rise as supplies fluctuate before a fall

Ahead of the curve learning:


Despite the economic crisis and widespread deflation fears, world food prices are rising. This major escalation in food prices calls to question the conventional wisdom that inflation is not a problem.

Today’s worldwide food inflation is a far different story, because it is happening in the face of widespread deflation fears. Consumers are delaying purchases. Banks are hoarding cash (ie: most Chinese merchants aren’t accepting credit cards because banks are delaying payments). Businesses are scaling back expansions and reigning in spending. Yet, despite all these factors, food prices are going up. Isn’t that interesting?

The US is not immune from rising food inflation: prices for food in US grocery stores jumped 6.6% last year, the biggest spike since 1980. Even this December, which saw gasoline prices fall by 17.2% (the biggest monthly decline in 71 years), food costs refused to fall. If US food prices couldn't muster a fall in December, five months after the commodity bubble burst and deflation fears gripped the world, then they should not be expected to fall at all.

Market Skeptics


So capitalism, democracy, etc. make us free, eh?

1 Comments:

At 4:56 AM , Blogger FJ said...

Food prices MAY fall in the short term. My father runs an Italian specialty food store and he has seen even pasta come back down to earth. What's happening in these bad economic times is that when gas prices were high, vendors would charge gas surcharges for delivery of items. Those surcharges haven't gone away because it's another way to stick it to the customer (retailer) who isn't ordering as much inventory these days.

The real problem is price fluctuation; oil prices may fall or rise, but since it's uncertain in the short term where oil prices are going, food will always stay high because why would anyone lower their prices on a commodity right now? They want to make out as much as possible, and profit margins are already razor-thin.

Only in a more cooperative/nationalistic society would people not worry so much about profit and worry more about being the best [fill in the blank here] in town. Being disconnected from the supply chain as consumers is where things start to fall apart for us.

 

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