Monday, April 7, 2008

What Inflation?

From Bloomberg:

From Cairo to New Delhi to Shanghai, the run on rice is threatening to disrupt worldwide food supplies as much as the scarcity of confidence on Wall Street earlier this year roiled credit markets.

China, Egypt, Vietnam and India, representing more than a third of global rice exports, curbed sales this year, and Indonesia says it may do the same. Investigators in the Philippines, the world's biggest importer, raided warehouses last month to crack down on hoarding. The World Bank in Washington says 33 nations from Mexico to Yemen may face ``social unrest'' after food and energy costs increased for six straight years.

Rice, the staple food for half the world, rose 2.4 percent to a record $20.985 per 100 pounds in Chicago today, double the price a year ago and a fivefold increase from 2001. It may reach $22 by November, said Dennis DeLaughter, owner of Progressive Farm Marketing in Edna, Texas.

I touched on this story on Friday, which also included a long-term (15-year) price chart. The encouraging part of that price chart was the rice market has been through similar spikes and price retreats in the past. My guess was the reason for the spike was the growth of Asian economies. As these economies grow standards of living rise. This increases demand for food. But as demand rises new and/or better sources of rise production are developed which eventually lowers prices.

The problem right now is the increase in social unrest as it relates to some of these countries. Simply put, food riots are bad.