Agflation is Here: Hate to Say I told you So...

Written By Brian Hicks

Posted November 9, 2010

Surprise… Surprise. Inflation caught up with food prices. What a shock.

As the Wall Street Journal points out, “Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months. And food makers and retailers including McDonald’s Corp., Kellogg Co. and Kroger Co. have begun to signal that they’ll try to make consumers shoulder more of the higher costs for ingredients.”

Food prices are actually rising faster than inflation numbers. CPI, which excludes food and energy, was up 0.8% to its lowest 12-month increase since March 1961. Unfortunately, the food index was up 1.4%. And the U.S. Agricultural Department is predicted overall food inflation of about 2% to 3%, says The Reformed Broker.

That means the average Joe is screwed… big time.

As I said on October 13, 2010 in Energy and Capital:

If you thought your $200 weekly grocery bill was bad, just wait. 

It’s about to jump 20% to 30% next month, as the Fed embraces another round of quantitative easing to combat global currency manipulation and devaluation.

But that very move could do more harm than good. It’s likely to create another food price bubble, similar to what we saw in 2007-2008.

Three years ago, wheat prices skyrocketed even as the consumption-to-stock ratio warranted falling prices… Bread was up to $1.32 at the time — a 32% rise in less than three years… The price of eggs rocketed 50%. 

Overall, food prices rose more than 5% and the average family’s grocery bill rang in $80 higher.

And we’re going to see it happen again, as historically high corn prices drive the cost of beef to twenty-five-year highs…

The sad fact is, this situation has no chance of improvement if the Fed floods the global economy with more dollars.

What the move will do is further damage the U.S. economy

Apparently, we’re not paying enough for food, energy, or clothing…

It doesn’t matter that 20% of Americans are unemployed or under-employed.

It doesn’t matter that, since the Fed last spoke, gold and other commodities have spiked…

Crude oil has already soared some 27%. Wheat is up 84%. Sugar is up 55%. Soybeans are up some 24%. And corn just rocketed another 15% in two days — the biggest move in recent history, and a move that prompted some to warn of another food crisis.

The meat industry just warned of a game-changer in pricing and profitability; the cost and contraction of corn supplies could mean higher prices for beef, pork, and poultry that will be passed on to the consumer.

And even more excess cash is showing up in food prices…

The U.N. has reported that global meat prices are at a twenty-year high: Pork bellies (think bacon) are at a record $1.50 a pound; Australian lamb prices are at $5.50 a kilo — the highest price since 1973.

In August, a JPMorgan analyst who tracks food prices reported that a standard basket of Wal-Mart food in Virginia increased 5.8% over last year. In India, food prices were up 14.05% in the second quarter.

This is a big deal…

Of course, extreme global weather patterns are sending food prices up, as well.

Droughts in Australia, flooding waters in Pakistan, heat waves, cold snaps, earthquakes, and natural disasters all play a part in the harvest.

But it’s all too easy to blame rising food prices on Mother Nature…

The truth is that — if it weren’t for our loose monetary policy — these commodities would not have increased as quickly as they have.

All the Fed has to do is initiate another round of QE and those prices move even higher, and the effects will be disastrous. We’re talking food crisis and riots; we’re talking higher retail prices, which would hit consumer income.

We’re talking about global chaos.

And for what? To save a fragile U.S. economy that’s on the brink of collapse anyway?

When the Fed eased in 2007, oil and food prices exploded — killing the global economy with sky-high unemployment. (Two years after 2008’s easing, and we still haven’t seen the promised improvement in unemployment.)

What will be different if the Fed initiates QE2 in November — besides rampant moves in energy and food inflation and a depressed economy?


But there’s an easy way to profit from the insanity… and readers of Options Trading Pit are already rolling in gains.

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