Above is a chart of the YOY percentage change in food prices. Notice the last five times that food prices have advanced more than 7.5% on a YOY basis a recession has followed. You could argue that this time is more like the spike which occurred after the 2000 recession, when prices advanced quickly from an incredibly low reading, which exacerbates the following spike. However, that spike could still be a reason why the early part of the last expansion was so slow (in 2002, the rate of GDP growth on a quarter to quarter basis was 3.5, 2.1, 2 and .1, respectively).
However, there is no arguing that higher food prices are clearly a current economic issue which will be putting downward pressure on consumer spending for foreseeable future. Now the question becomes, will this continue?
Here are three charts of the major grains (wheat, soy and corn):
After a strong advance, all are now moving sideways in one form or another. So while price increases have stalled, there has been little in the way of downward pressure on grain prices.
Energy price spikes get a lot of publicity; not so much for food prices. Yet the information above says food prices are crimping consumer spending with little chance for a meaningful drop in the near future.
3 comments:
The effects of the ethanol boondoggle. Not only do we mandate the use of food for fuel (thus taking away precious acres from food production and driving up the price of virtually all food), but we actually subsidize ethanol and then have a tariff on foreign ethanol as well. Nice racket (er business) model if you can lobby for it.
Surely though CPI is the y/y price increases? Hence if we are moving sidewys, ie price is stable at very high prices, the y/y increases will eventually head lower to 0%?
Further, all the main futures are in backwardation, people expect prices to be getting lower?
Milk and Eggs in my area have been killing me. It seems to go up even more when the economy does better too.
And I definitely agree with the last point. You rarely get public info on increasing food prices. But a 3 cent rise in Gas is the news headline all day long.
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