Price of essentials rises by 10 per cent
Tom Bawden, Independent (U.K), 1 September 2012 (hat tip: NC)
The G20 is under growing pressure to call an emergency food summit after the price of essentials jumped by ten per cent on average in July.
New research shows prices are at a record high following "an unprecedented summer of droughts and high temperatures". Cereal prices were particularly hard hit, with maize and wheat rising by a quarter and soybeans by 17 per cent, as poor weather decimated harvests in the US, Russia, Ukraine and Kazakhstan, according to the World Bank. The average global food price in July stood six per cent higher than a year earlier.
This contrasts with a report by the Economist, that the global economy is slowing down: generally in a downturn, prices collapse.
But as I have said (ad nasium) before, when an economy is faced with population pressures, the price of food and food inputs will go up, while manufactured goods will stay stable. Of course if you add a lot of leverage (borrowing) to the mix, you will get a complete collapse in prices down to a fraction of their previous value. And that is what has happened in a lot of asset classes. But not for the essentials.
Going forward, you would expect to see the price of essentials absorb more money, while the value of many people holdings goes down. As the 1970s showed, it is not impossible to have inflation in a downturn, but it is hard to get the velocity of money going fast enough to keep prices up. In the case of the 1970s it took monetizing the Vietnam War debt, and of course their was the first signs of consumption (a.k.a. population) pressure on basic input prices with the Arab oil embargo.
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