Inflation is starting to really mean something when it comes to food and energy. The government stats on inflation conveniently omit food and energy when reporting things like the Consumer Price Index (CPI). Let’s see what Janet Yellen has to say this week. I bet she isn’t worried about inflation in the least.
Whenever economic reports are released, the headline number is “without the volatile food and energy sector”. Food and energy are very volatile. As quick as prices can go up, they can come down. But, over the past several years there is one reason the price of energy isn’t going down-government regulation and policy.
For evidence, all you need to do is look at the arduous debate over things like the Keystone Pipeline ($CL_F). Environmentalists, who mostly caucus with Democrats have held it up. The EPA, OSHA and other government agencies are writing all kinds of expensive rules and regulations to make exploration, refining, and distribution of energy products cost more. That gets passed on to consumers.
Thank goodness for things like fracking ($NG_F), without it we might see even higher prices. If you are thinking of replacing your water heater, now is the time to look at new innovations like Intellihot. Prices aren’t going down.
The food industry has seen both the supply and demand curves get hit by multiple shocks. The rise of the middle class in places like China have driven them to demand higher quality food and vegetables. This has been a windfall for US exports.
At the same time, the US has been hit with drought, both real and artificial. The real drought is just because it has rained less. The fake drought is government mandated in southern California. The reason for the fake drought, global warming. Government is using junk science to impose its will on the people.
The recent farm bill that passed was chock full of subsidies for corporate farmers. A goody bag of money from the government that influences what farmers plant, and how much of each crop gets produced. An economist once told me that every jar of peanut butter we buy is .50 higher than it should be because of farm subsidies.
Grain crop prices ($ZC_F, $ZW_F, $ZS_F) have gone higher in past years because of rising demand, but also because of drought. No rain, no grain. Farmers are planting fencepost to fencepost. Still, a lot of land is idle because of CRP. The cost to farm has gone up with the cost of energy. Successful farmers look at cost/benefit analysis just like a factory. Innovations like Farmlogs help them manage their cropland better.
Meat ($LC_F) has seen a tremendous upsurge in prices. Part of that has been scare. Remember the pink slime scare over a year ago? Because of it, beef prices have to go up because not using pink slime decreases supply. The cost of feed has gone up too (drought) so cattle ranchers thinned their herds. Animal gestation isn’t automatic, and the cost to bring a steer to market hasn’t gone down, so the nation’s cattle herd isn’t being rebuilt on higher prices.
Hogs ($HE_F) have seen an exponential price move higher in recent weeks. A virus, PEDv hit the nation’s hog herd last May. At first, it was controlled. Since the spread, US pig farmers have seen 5,000,000 pigs die, mostly piglets. The crisis is so severe, the largest hog processing plant in the country, Tarheel in North Carolina, is shutting down a few days during the week because it cannot source enough pork to butcher. Oh, and yes, the price of bacon is going to skyrocket.
It would be interesting to see if we could eliminate all the government subsidies and bad policy. What would our food really cost if the unfettered free market set the price? One thing is for sure, on our current path, prices aren’t going down.
thanks for the link Glenn Reynolds of Instapundit.