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Guest Post: Rising Food Prices Push Up Inflation Significantly

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Sat, 02/19/2011 - 17:21 | 977919 Id fight Gandhi
Id fight Gandhi's picture

Would the consensus here be that us monetary policy such as QE has been the principal driver in prices?

Or would you say demand is higher and weather related issues are to blame, as most news outlets say?

Sat, 02/19/2011 - 17:43 | 977972 gwar5
gwar5's picture

Tarp, QE I, QE II (about $2 Trillion already), plus $1 Trillion stimulus ($1.5 Trillion/yr deficits x 2 yr with no end in sight) plus trillions to bail out the Eurozone.

The world's commodities are priced in USD and there's been excessive printing of them.

Sat, 02/19/2011 - 20:36 | 978361 SimplePrinciple
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Don't forget ethanol, which causes U.S. farmers to switch to corn and then literally burns up 40 percent of the U.S. corn crop.  http://www.zerohedge.com/article/guest-post-how-many-senators-does-it-ta... That's something we could fix if the crony capitalists would allow it.

Sat, 02/19/2011 - 21:13 | 978427 Quinvarius
Quinvarius's picture

No it doesn't.  Feed corn used for ethanol remains in the food chain.  It s still used as cattlefeed after the starch is extracted.  That shoots down your entire argument.  The fact is, it is wasteful to not process feed corn into ethanol.  You get extra profit out of it and lose nothing.

Sat, 02/19/2011 - 21:49 | 978509 Hulk
Hulk's picture

Loose nothing? Where do you think all that energy in alcohol comes from?

Whats left to feed the animals is junk...

Sun, 02/20/2011 - 09:47 | 979316 More Critical T...
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The world's commodities are priced in USD and there's been excessive printing of them.

That's a common myth believed here on ZH. Reality is that commodity prices show an inverse correlation with the USD's strength.

Global value of food commodities are not USD dependent, as the US is a relatively small player when it comes to food production and consumption. They are mostly supply and demand driven. And supply has been reduced big time. For example: http://news.nationalgeographic.com/news/2010/08/photogalleries/100810-ru...

Grain export ban in Russia, August 2010: http://www.independent.co.uk/news/business/news/russian-wheat-export-ban... This set off a supply & demand chain reaction: with rich buyers (yes, you ...) bidding up prices until they got the food they wanted. Poor buyers had to stop bidding at a certain price - instead they started starving and protesting.

Sun, 02/20/2011 - 10:10 | 979343 creviceCaress
creviceCaress's picture

aawww dont worry about big guy, they'll make up for it by feedin'em the styrofoam peanut finish at 6wks instead of 4wks....you wont notice a thing......and ethanol is a green fuel!


god bless the spectacle

Sun, 02/20/2011 - 17:09 | 980022 Hulk
Hulk's picture

SO true. Chewin gum , along with the wrappers, is allowed feed, no doubt due to its over supply...

Sun, 02/20/2011 - 09:37 | 979315 Lizabth
Lizabth's picture

I'm sure that 'extracted cattle feed' makes great tortillas and such. Since the poor can't afford meat. Farmers are right up there with banksters in my estimation. What swindlers. Welfare queens with the best of 'em, on one hand. Creators of swindle with the best of 'em, on the other. Isn't thirty years of ethanol welfare enough? How much do you guys want? I know...your appetites and greeds are endless. At least your high living is putting the 'Little House on the Prairie' meme to rest, for good.

Sun, 02/20/2011 - 15:27 | 979848 SimplePrinciple
SimplePrinciple's picture

They're just saying, "You can have your ethanol and eat it, too."

Sat, 02/19/2011 - 18:06 | 978015 tickhound
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I made a foolish error in previous years by investing in pm's and other commodities... I did this in anticipation of the obvious government solution of increasing the money supply in effort to inflate away debt.

According to reports, the inflation I anticipated and the resulting gains I expected did not come.

LUCKILY, for me, a near act of god was delivered by way of crop destroying weather incidents and a sudden universal human desire to increase its appetite... the world isnt just hungry, its hungrier.

These two "market movers" have saved me from what otherwise could have been a disastrous investment choice.

Sat, 02/19/2011 - 20:07 | 978305 adissidentishere
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You truly made me laugh out loud on a day that was otherwise filled with very depressing news.  Love the irony.  Thanks for that.

Sun, 02/20/2011 - 04:21 | 979171 Howard_Beale
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(flag as excellent!)

Brilliant post. TY.

Sun, 02/20/2011 - 09:55 | 979329 pazmaker
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Would the consensus here be that us monetary policy such as QE has been the principal driver in prices?

Or would you say demand is higher and weather related issues are to blame, as most news outlets say?



I don't think it is as simple as either this or that, but rather more complex and most likely driven by both factors you mentioned

Sat, 02/19/2011 - 17:22 | 977921 Azannoth
Azannoth's picture

Wipe out the bottom 1 Billion to save a few fat cats on Wall Street, way to go

Buffet should give all his wealth Now to those people they are suffering because of 'his' bailout

Sat, 02/19/2011 - 17:26 | 977934 falak pema
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Mad is that mad does...remember that mad hatter Ben Bernanke..

Sat, 02/19/2011 - 18:23 | 978071 topcallingtroll
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why can't these other countries conduct a tighter monetary policy and let their currencies rise?  That would solve any dollar based inflation.

Sun, 02/20/2011 - 15:09 | 979806 goldsaver
goldsaver's picture

Because their exports are sold priced in dollars. If you sell a 50lbs sack of rice for 200,000 dongs at 20,000 dong per 1 US dollar (10 dollars) and you let your currency strengthen lets say 30%, you now only get 140,000 dongs per 50Lb sack of rice. If your fixed costs are already eating 140,000 dongs (domestically) per sack, you eliminated your profit margin and have to shut down your farm. So you are left with either raising your prices for exports (which impacts other non US dollar countries worst) or weakening your currency. Problem is, now your fixed costs (fuel, transport, repair parts) cost you more of your local currency.

Sat, 02/19/2011 - 17:56 | 978004 Waterfallsparkles
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Bernanke says that other Nations have to deal with their own Monitary issues.  Kind of like let them eat cake.  Dont you think?

Sat, 02/19/2011 - 18:21 | 978048 topcallingtroll
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what Bernanke means is that they shouldn't just copy the fed move for move.  We are following a monetary policy rightly or wrongly that Ben feels is suitable for the USA which is at risk of deflation.

If these other countries are already mostly at maximum capacity utilization for their particular economy then they will have food inflation as well as all sorts of general core inflation if they copy a monetary policy designed for a country with excess capacity.

There are many currencies, actually probably all of the small ones, that may not have an official dollar peg but unofficially on the downlow try to target the dollar and keep their currency within a certain range.  It would be nice to see a chart of the exchange rates of these countries' currencies over the last year if it exists somewhere.  If their exchange rate hasn't moved much against the dollar then they are copying fed monetary policy even if they try to deny it.  If they are copying fed monetary policy to avoid having their currencies rise against the dollar, then those third world countries are fully responsible for any inflation component of rising food prices.

I don't think exchange rates and failure to conduct appropriate monetary policy in third world countries explains the food price rises completely.  We have exploding populations and other issues to deal with, and price changes are rarely smooth and gradual even in response to rational and predictable secular changes in demand.   We have a lot of speculation going on in the markets that real inflation is here to stay.  Tight markets like cotton and other small commodity markets really aren't able to cope with all this speculative demand that may or may not be predictive of true inflation coming down the pike.

We appear to be in a secular uptrend with all these emerging economies wanting to upgrade their diet to more animal protein for example, multiplied by the growing populations and some significant food crop problems in Russia, Pakistan, Australia, and possibly a few others.

Sat, 02/19/2011 - 18:31 | 978089 Waterfallsparkles
Waterfallsparkles's picture

Bernanke has too many people riding on the bus.  Once the bus runs out of gas or the tires deflate from the weight there will be real trouble.

Sat, 02/19/2011 - 22:21 | 978600 topcallingtroll
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True. But that is a fiscal policy issue not a monetary policy issue. He has urged entitlement reform in congressional hearings.

Sat, 02/19/2011 - 21:11 | 978419 Id fight Gandhi
Id fight Gandhi's picture

The dollar peg has been a moot point since the Nixon shock. We had decent system with bretton woods and they fucked it up.

Ben and crew constantly bitching over the yuan peg the root of evil is bullshit. And pointless as our trade gap shows we still buy way more then they buy from us. So yuan up, means everything soaring.

Most of the commodity surges are speculations and asset inflation spurred on by us fed policies and money games. We have no true means of a free market.

Sat, 02/19/2011 - 22:09 | 978569 topcallingtroll
topcallingtroll's picture

Imbalances of trade that persist are evidence that normal balancing mechanisms are not working. The surplus country would see their currency appreciate and the deficit country currency would naturally depreciate. Sustained trade imbalances cannot occur without manipulation of exchange rates. The peg is preventing the normal currency adjustments that would end the trade imbalance.

Sun, 02/20/2011 - 15:54 | 979906 goldsaver
goldsaver's picture

That would be true but you forget the Chairsatan factor. Inflating your currency is currency manipulation. period. If you inflate the currency to finance your economy you are exporting that inflation to other countries. Without the manipulation, lets say a commodity based currency standard instead of a dollar based standard, the US could not afford to inflate the currency since it would require additional commodity production to back the additional bank notes. Since we, as a country, are not producing any more commodities, there would be no way to expand the economy thru inflation.

Sat, 02/19/2011 - 18:31 | 978099 gall batter
gall batter's picture

I've always considered it peculiar when someone says "fall" into poverty.  People are being pushed into poverty.  I read an article some months ago by William Rivers Pitt who wrote about a water-main break in Boston.  People were fighting over bottled water in the groceries--this is an example of what's to come when shelves are understocked because of food shortages.     

Sat, 02/19/2011 - 18:35 | 978103 Waterfallsparkles
Waterfallsparkles's picture

Obama is cutting Heat subsidies for the poor. Food pantries for the poor are running out of food and funding.

Sat, 02/19/2011 - 18:57 | 978167 Id fight Gandhi
Id fight Gandhi's picture

Oh most of the people that voted for him.

Hope n change.

Sat, 02/19/2011 - 18:41 | 978128 DosZap
DosZap's picture

Is there an ETF for Dead, and Dying?,because summer is as deadly as winter.If not more so.

Sat, 02/19/2011 - 19:50 | 978267 joneog
joneog's picture

A better title would be: "Rising Inflation Pushes Up Food Prices Significantly"

Sat, 02/19/2011 - 19:54 | 978275 EscapeKey
EscapeKey's picture

It's not just food.

CNN are running an article about unleaded starting to separate from WTI. Gee, you tell me they manipulate this public benchmark, too?


But like it or not, prices on the U.S. East Coast already are linked to Brent, because refineries there use oil imported by the tankerload from Europe. And other regions are feeling the squeeze as well.

Take Louisiana Light Sweet crude, a fuel blend favored by refiners in the south who are cut off from the WTI market. The spread between WTI and Louisiana Light recently hit $21 a barrel, another record.

Sat, 02/19/2011 - 21:07 | 978415 akak
akak's picture

I can just imagine Washington's response if global warming ever really revs up: just recalibrate all the thermometers, so that what used to read 80 degrees now reads 65!  See, problem solved!

Sat, 02/19/2011 - 20:36 | 978367 akak
akak's picture

When informed about the worldwide riots as a result of high food prices, Bernanke's lower lip quivers, and he then arrogantly waves his hand and says "How dare you disturb me in my ivory tower with such trivia!  Let them eat QEIII cake!"

Sat, 02/19/2011 - 20:53 | 978386 Hugh G Rection
Hugh G Rection's picture

The derivative bubble (which represents 15 times the worlds GDP) has not yet burst.


15 times... 1.5 QUADRILLION! That's a lot of greenbacks.


The Bernank says " Let them eat my bukakke"

Sat, 02/19/2011 - 20:58 | 978401 EscapeKey
EscapeKey's picture

Huh? World GDP = $58tn, so 15x58tn = $870tn.

If you talk about derivatives, shouldn't you really talk about net notionals, which I believe in 2008 were around 3% and is now somewhere in the region of 1% - which means 1% of $1.5quad = $15tn? Still a hefty chunk of course, but Max Keiser exaggerates the problem.

Sat, 02/19/2011 - 21:48 | 978508 buzzsaw99
buzzsaw99's picture

This is what happens when you don't allow maggots in high places to go out of business (or even to suffer a loss).

Sat, 02/19/2011 - 22:18 | 978590 topcallingtroll
topcallingtroll's picture

Yeah...we could have qe'd in a more fair way after zeroing out the stock and bondholders of the major banks and nationalizing them temporarily.

Sun, 02/20/2011 - 02:21 | 979086 snowball777
snowball777's picture

But enough about Karzai and Zardari.

Sat, 02/19/2011 - 22:01 | 978537 mynhair
mynhair's picture

Cake isn't up here, so what's the problem?

No gas in WI?

Sun, 02/20/2011 - 02:24 | 979088 snowball777
snowball777's picture

Most people think Marie was being dumb when she suggested they "Eat cake!", but the common understanding of the term at the time was a reference to the burnt-up, baked-on, caked-on crap in the oven after making bread so she was really being quite intentionally cruel, thus truly earning her fate.


Sun, 02/20/2011 - 14:04 | 979687 Hugh G Rection
Hugh G Rection's picture

thanks snowball, I didn't know that about her cake reference.  I still think Bernank's bukakke is more cruel.


Anyone know the biggest supplier of guillotines?

Sun, 02/20/2011 - 02:17 | 979079 snowball777
snowball777's picture

Hmmmm...one of these things is not like the other one...

Hint: it's the one with the nukes and an axe to grind with the US beyond their printing.

Sun, 02/20/2011 - 12:10 | 979515 falak pema
falak pema's picture

I just placed 1 trillion USD on corn/wheat futures, maturity end summer 2011. I can't lose. But don't blame me if the price of these commodities rises in the next few months. Blame it on climate change, La Nina, lady Gaga, Justin Beiber...never on the fundamentals of free trade and the invisible left hand of the market.

Sun, 02/20/2011 - 12:12 | 979516 lbrecken
lbrecken's picture

my avatar says it all...

Sun, 02/20/2011 - 12:13 | 979518 PulauHantu29
PulauHantu29's picture

I stocked up on Snickers Bars before they soared 48%. I predict dark chocolate will double this year as Ivory Coast civil unrest and other global tensions....and oh yeah, the massive printing of Trillions more by the Fed to save insolvent banks.

Mon, 02/21/2011 - 03:17 | 980996 Youri Carma
Youri Carma's picture

There's a special symbol on your keyboard and it looks like this %

You can find it above the "5" so shift+ "5"=% :)

Wed, 07/06/2011 - 03:50 | 1428863 jimmight
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