Reuters reports FAO food price index hits record high in January:
Global food prices hit a record high in January, the U.N Food and Agriculture Organization said on Thursday, adding that prices, already above the 2008 levels which sparked riots, were likely to rise further.
Up for the seventh month in a row, the closely watched FAO Food Price Index touched its highest since records began in 1990, in nominal terms, and topped the high of 224.1 in June 2008, during the food crisis of 2007/08.
I would say that massive reflation efforts on the part of global central banks are what have brought about these developments, in particular the massive inflation going on in China.
There is no way to fight the deflation supercycle in the US, it can only be prolonged and its effects pushed out into the future.
Thus you will notice that food prices are far from record levels in the US, even though they have bounced back a bit from the lows of the past years. We also can’t say that food prices in the US have been exploding fundamentally, at least according to the USDA:
The Consumer Price Index (CPI) for all food increased 0.8 percent in 2010 and is forecast to increase 2 to 3 percent in 2011.
One CAN indeed say that reflation efforts in the US have been successful, for the time being, in rewarding irresponsible speculation, fueling a commodity and junk bond bubble, and boozing up Wall Street’s party.
How much longer that will last? Who knows. Where it will end? Everyone knows.
I’d like to reemphasize something from the Reuters article:
The closely watched FAO Food Price Index (…) topped the high of 224.1 in June 2008, during the food crisis of 2007/08.
Remember what also happened in 2007/08?
And conditions for a peaceful and less painful correction where a lot better then than they are now. The states of the world didn’t allow it to come full cycle. The payback is imminent.
When I wrote about credit expansion in 2007, I did mean what I said when I said:
As long as the central banks keep pursuing this policy, there is no need to be surprised when the next credit crunch occurs. Neither is there any need to be surprised about the fact that all countermeasures taken by the government will turn out to be utter failures that will accomplish nothing but aggravate the crisis. For if the cause of the problem has been too much government intervention, then more government intervention will only add to it.
Unemployment remains high, irresponsibility and speculation remains rampant, the root causes of the financial crisis remain unaddressed, fundamentally nothing has changed for the better.
The next credit crunch is coming. We reap what we sow.