So far in 2014 the disinflation drums have been beating loudly over all parts of the media, albeit that they often call it deflation. This has been most pronounced in the Euro area where the latest official consumer inflation reading is shown below.
Euro area annual inflation was 0.5% in March 2014 , down from 0.7% in February. A year earlier the rate was 1.7%.
Not only is inflation in this area low but the annual rate has fallen by 1.2% over the past year. This is what has attracted the attention of the media although it forgets that the fall is in the past and that what really concerns us is whether it will fall further. Also presumably media pundits feel that paying higher prices caused by inflation is good for them which is an odd thing to say. It is of course governments (and central banks) with their high debt burdens which are pushing the line that low inflation is bad and dangerous which it is for them!
Of course the Euro area is not the only place where consumer inflation has dipped. Even the UK has seen inflation fall below its 2% target. Indeed if we move across the world to China, at the beginning of the price chain, there is disinflationary pressure there too.
In March 2014, Producer Price Index (PPI) for manufactured goods decreased 2.3 percent year-on-year, and decreased 0.3 percent month-on-month. The purchasing price index for manufactured goods went down by 2.5 percent year-on-year, and went down by 0.2 percent month-on-month.
With the cut in some official reserve requirements for some rural banks announced by the People’s Bank of China today there is doubt as to how fast the economy there is growing. But even in a place where there were fears of overheating official consumer inflation is this.
In March, the consumer price index (CPI) went up by 2.4 percent year-on-year.
Food prices are rising
Tucked away in the detail of many inflation reports is the fact that the price of food has not seen disinflationary pressure and has continued to rise. For example we see this in the inflation data from China.
In March, food prices went up by 4.1 percent year-on-year, affecting nearly 1.35 percentage points increase in the overall price level.
Rather ironically the main downwards influence on an annual basis was the price of pork where rises are feared due to increased Chinese demand. However higher food prices have been found well beyond the borders of China. For example the UK even the British Retail Consortium which trumpets price disinflation as often as it can tells us this.
Food inflation slowed to 0.8% from 1.1% in February
Not much you might think but considerably more than the non-food sector where prices are according to the BRC falling at an annual rate of 3.2%.
Basic food prices
If we move to the commodities market we see that food prices have been rising strongly in 2014 so far. The Commodity Research Bureau produces a foodstuffs index which closed 2013 at 364.65 and closed yesterday at 440.39 for a rise of just under 21% so far this year. This gives a very different pattern to that of 2013 where food prices fell and we have regained that and some more in 2014.
Those of you who have noticed rises in meat prices will gain some further food for thought from the behaviour of livestock commodity prices. This comprises these factors below.
Hides, Hogs, Lard, Steers, Tallow
In case you too were wondering what tallow is? It is beef or mutton fat and has uses from foodstuffs to soap although the cholesterol reading is through the roof! If we move back to the influence on inflation we see that the livestock index is up some 25% so far in 2014 and has in fact moved to record levels. It has dipped back by 1% since the peak where it nudged over 700 (700.3) on April 14th but this is a credit crunch peak exceeding the 656 of August 2011 and representing quite a surge on the initial credit crunch nadir of 267 in December 2008. This appear to be not the best of times to be a carnivore….
If we continue with the rising food price theme then the website 247 WallStreet compiled a list of the ten fastest rising food prices beginning with the humble grapefruit which is up by 22% over the past four years. The top three are below.
> 4-yr. change: +35%
> 1-yr. change: +23%
2. Ground Beef
> 4-yr. change: +35%
> 1-yr. change: +8%
> 4-yr. change: +53%
> 1-yr. change: +13%
I do not know about you but I cannot think of rising prices for OJ (Orange Juice) without thinking of Eddie Murphy and Dan Akroyd in the film Trading Places. But beneath this there is a message of rising food and particularly meat prices.
Mind you those who avoid meat via the Soybean or Soya bean route are having a hard time of it as well. From the NorthWestern.
Prices for soybeans and soybean meal hit all-time contract highs on Thursday, trading for $15.31 per bushel and $495 per metric ton, respectively.
Now “all time contract high” is indeed an oxymoron but even so we get the message.
The price of wheat which was falling has been given an upwards push by the problems surrounding the Ukraine. The situation is still volatile for obvious reasons but wheat prices are up 11% so far in 2014.
There are plenty of worries about food prices going forwards of which two seem the most powerful. Firstly we have the basic impact of a rising human population and secondly there does seem to be a genuine problem with the Bee population which sadly cannot be reversed by the impact of my window-boxes and dwarf Rhododendrons in pots!
This is the other side of the inflationary coin as fuel prices have been a disinflationary influence in recent times. This happened firstly by it stopping being an upwards influence on inflation and then it became a downwards push. If we look at the Euro area we see that has impacted there and was the biggest downwards influence.
while fuels for transport (-0.24%)
This has been repeated in the UK where the transport category was this.
Largest downward effect on the all items 12-month rate change
Some of the impact here has been caused by the fact that both the UK Pound and the Euro have been strong currencies in recent times. But if we look at the basic price of Brent crude oil we see that after the rises of late summer 2013 where it pushed above US $115 per barrel it has drifted lower. Even with the crisis in the Ukraine it has only nudged above US $109 and regular readers will be aware of the view expressed for a while now that it is like there is a strong magnet on the US $ 108 level. So the inflationary pressure has faded away somewhat.
However even here there are possible signs of change. Of course current events are an influence but natural gas prices in the United States have risen. The Henry Hub measure which seemed to have been pushed below US $4 by the fracking boom going as low as US $2 in early 2012 is now US $4.68.
My message today is that the media and central bank “deflation” campaign is backwards rather than forwards looking. Of course they actually mean disinflation. But to my mind the paranoia that is driving this debate has quite a few flaws. Firstly as you can see from food prices it is not true that inflation has disappeared and I note that a lot of the downwards pressure has come from fuel prices. Secondly a lot of the downwards pressure in the UK and Euro area has come from a strong currency. Thirdly the pattern for wages looks much more hopeful than it has been in quite a few countries which will in time impact on prices and inflation.
So there is my question for today, has the consensus view wrong-footed itself one more time?
How long is the Long Run?
This was defined by John Maynard Keynes thus.
In the long run we are all dead
Back in 2013 Manchester United Football Club had a go by giving David Moyes a six-year contract. We discovered this morning that eleven months are the new 6 years. Is the clock spinning faster these days? In the world of football it appears that the clock is on speed.
Meanwhile I guess Rafa Benitez will be pleased to note that Ryan Giggs will be interim manager.