March 16, 2011

Palpable Inflation

It isn't a Malthusian crisis, but food prices are apparently on the rise.  That's not surprising to me personally; I've noticed a palpable inflation at the grocery store in the last several weeks that rivals the increase at the gas pumps.  True, I'm in Canada. But as the saying goes, when the United States sneezes, Canada catches a cold.  This inflation could be a pretty big sneeze.

According to Yahoo Finance,

The Labor Department said Wednesday that the Producer Price Index rose a seasonally adjusted 1.6 percent in February -- double the 0.8 percent rise in the previous month. Outside of food and energy costs, the core index ticked up 0.2 percent, less than January's 0.5 percent rise.

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.

Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.
It's not surprising.  The story covers a number of reasons that food prices have risen, but gives short shrift to some and neglects another entirely;

Food costs, meanwhile, are rising. Bad weather in the past year has damaged crops in Australia, Russia, and South America. Demand for corn for ethanol use has also contributed to the increase.
Certainly supply shortages as a result of poor growing conditions is likely a factor, but ethanol subsidies have an unintended consequence of diverting arable land from food production to fuel production. That is an inflationary pressure. And the one they forgot? Well it's actually a series of quantitative easing by the fed to stimulate the economy, combined with an infusion of stimulus spending by the Obama administration. Extra money in the system, whatever the source (and these are two big levers delivering a lot of cash) ultimately have an inflationary pressure. Creating money is different from creating wealth. Printing money (which in effect is what quantitative easing amounts to) and borrowing money flood the system that still has the same amount of things to buy. In essence it's cheapening the value of every dollar so it will cost more of it to buy the same thing as yesterday.

All of those factors combined, I'm sure this is not the end of the inflation for food.  For that matter, oil is likely to suffer as well.  Although it's likely the Japan situation might temporarily ease demand and therefore price.  But I expect more inflation over the next few years, and while President Obama is not solely to blame, Democrat spendthrift ways are at least as big a contributor as supply problems.  This will bear out if prices rise and good harvests worldwide follow the downturn in production. We'll see.


  1. According to administration "expert" the rise in fuel and food prices is nothing to worry about! God knows they've said that enough. As long as the Fed keeps printing more worthless money and the piece of scum in the White House not only refuses to lead but in fact endorses collapsing our entire economy, it's going to get worse! The clown in charge in my opinion is more than happy to run fuel prices through the roof and thus we all suffer.

    However, the main concern has to be the hyper inflation that is going to occur if we keep up the asinine nonsense of printing worthless money to cover our debts. Germany found out the hard way this doesn't work and it led to the Nazis! History keeps repeating itself and the assholes in office keep talking dwon to us in order to keep their power.

  2. Don't forget Zimbabwe. History is full of examples.

  3. Agreed. Greece, Argentina and so many others. The Weimar Republic is just the best known example to refer to. At least it was until the schools stopped teaching the facts about Germany.


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