Inflation Rears Its Ugly Head...at the Supermarket
The relentless plunge we've witnessed in the U.S. dollar is finally beginning to translate into higher import prices - thanks to America's gaping foreign trade deficit.
It's no wonder why the Fed remains vigilant about inflation. According to the latest data, import prices are soaring at a record rate: Up 11.4% year over year - the biggest increase in over 10 years!
Sure, surging oil prices have a lot to do with this. But food prices are soaring too, and so are industrial and precious metals. Now, we see the prices of manufactured goods (previously considered "cheap" imports) climbed nearly 1% last month. That's the biggest single monthly jump in prices since January 1996.
Producer Prices Doubled-Up on Expectations Last Month
Producer Prices paid by business and industry are surging higher as a result. The November Producer Price Index (PPI) out last Thursday displayed a shocking 3.2% jump. That's more than double expectations that called for just 1.6% increase.
Meanwhile, the Core PPI in November (excluding food and energy) jumped to 0.4%. That doesn't sound like much, but again it was twice the 0.2% expected. So both headline and core producer price inflation significantly exceeded forecasts last month. In fact, it was the fastest increase in the PPI in nearly 35 years (since 1973 to be exact)!Consumer prices for November, reported on Friday, were also higher than forecasted. That just fanned even more fears of inflation. The Fed now finds itself between an even bigger rock and a much harder place.
Creeping inflation isn't just a growing problem in the U.S. either. The Bank of England reported this week that inflation expectations are at an 8-year high.
The European Central Bank has said publicly that they are "seriously concerned" about inflation so much that they're still refusing to cut interest rates.
In China, inflation surged to nearly 7%, marking an 11-year high. China's inflation is being spurred mainly by surging food and energy costs too. So this is really a global phenomenon.
Speaking of surging food costs, my last trip to the grocery store gave me sticker-shock! Food prices are through the roof.
After Declining for 30 Years, Global Food Prices Doubled Since 2005
In fact, just since 2006:
Wheat prices have nearly tripled, to US$9.42 per bushel.
Corn has soared more than 150% to US$4.33 per bushel.
Soybeans are nearly twice the price, surging from US$5.87 a bushel in '06 to US$11.52 now - that's a 34-year high!
Prices of cocoa, coffee, palm oil, and rice are going parabolic too.
According to a recent story in The Economist, the International Monetary Fund's (IMF's) index of food prices (actual prices of a basket of food items) declined steadily for the past 30 years.
The index was actually slightly lower in nominal terms in 2005 than it was in 1974. And in inflation adjusted (or real) terms food prices declined about 75% since 1974!
Since 2005 however, the IMF's food index has just about doubled in price - that's on both a nominal, and a real basis.
There are many reasons for the big surge in food prices; strong demands from emerging economies, and the increasing trend toward using crops for biofuel production, are just a few.
But whatever the root causes, it's certainly feeding back into higher long term inflation expectations, regardless of what the government stats say. There's good reason to believe that commodity prices - and food prices in particular - will continue to move higher in 2008, and beyond.
The relentless plunge we've witnessed in the U.S. dollar is finally beginning to translate into higher import prices - thanks to America's gaping foreign trade deficit.
It's no wonder why the Fed remains vigilant about inflation. According to the latest data, import prices are soaring at a record rate: Up 11.4% year over year - the biggest increase in over 10 years!
Sure, surging oil prices have a lot to do with this. But food prices are soaring too, and so are industrial and precious metals. Now, we see the prices of manufactured goods (previously considered "cheap" imports) climbed nearly 1% last month. That's the biggest single monthly jump in prices since January 1996.
Producer Prices Doubled-Up on Expectations Last Month
Producer Prices paid by business and industry are surging higher as a result. The November Producer Price Index (PPI) out last Thursday displayed a shocking 3.2% jump. That's more than double expectations that called for just 1.6% increase.
Meanwhile, the Core PPI in November (excluding food and energy) jumped to 0.4%. That doesn't sound like much, but again it was twice the 0.2% expected. So both headline and core producer price inflation significantly exceeded forecasts last month. In fact, it was the fastest increase in the PPI in nearly 35 years (since 1973 to be exact)!Consumer prices for November, reported on Friday, were also higher than forecasted. That just fanned even more fears of inflation. The Fed now finds itself between an even bigger rock and a much harder place.
Creeping inflation isn't just a growing problem in the U.S. either. The Bank of England reported this week that inflation expectations are at an 8-year high.
The European Central Bank has said publicly that they are "seriously concerned" about inflation so much that they're still refusing to cut interest rates.
In China, inflation surged to nearly 7%, marking an 11-year high. China's inflation is being spurred mainly by surging food and energy costs too. So this is really a global phenomenon.
Speaking of surging food costs, my last trip to the grocery store gave me sticker-shock! Food prices are through the roof.
After Declining for 30 Years, Global Food Prices Doubled Since 2005
In fact, just since 2006:
Wheat prices have nearly tripled, to US$9.42 per bushel.
Corn has soared more than 150% to US$4.33 per bushel.
Soybeans are nearly twice the price, surging from US$5.87 a bushel in '06 to US$11.52 now - that's a 34-year high!
Prices of cocoa, coffee, palm oil, and rice are going parabolic too.
According to a recent story in The Economist, the International Monetary Fund's (IMF's) index of food prices (actual prices of a basket of food items) declined steadily for the past 30 years.
The index was actually slightly lower in nominal terms in 2005 than it was in 1974. And in inflation adjusted (or real) terms food prices declined about 75% since 1974!
Since 2005 however, the IMF's food index has just about doubled in price - that's on both a nominal, and a real basis.
There are many reasons for the big surge in food prices; strong demands from emerging economies, and the increasing trend toward using crops for biofuel production, are just a few.
But whatever the root causes, it's certainly feeding back into higher long term inflation expectations, regardless of what the government stats say. There's good reason to believe that commodity prices - and food prices in particular - will continue to move higher in 2008, and beyond.
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