Food Inflation on the Rise

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Drought, bad crop data, and rising grain prices around the globe have put food inflation on the front pages, raising alarm in many circles. Consumers are concerned, food producers are concerned, businesses are concerned, and governments are concerned. While food may not be a huge percentage of the daily budget for those in the developed world, it is in the lesser developed countries. Food inflation can erode the standard of living in the emerging economics rapidly and when food prices go up too much, governments fall.

The price of a bushel of Corn over the past year

corn 16 aug 2012

The price of a bushel of Wheat over the past year

wheat 16 aug 2012

The price of a bushel of Soybeans over the past year

soybeans 16 aug 2012

No Inflation in the U.S. -- Says the BLS

Even though we have seen huge moves in grain prices recently, thus far the increase has failed to show up in the U.S. government's inflation data. This week, the U.S. Bureau of Labor Statistics released its July Consumer Price Index (CPI) inflation data, saying that prices were unchanged in July. The CPI is designed to track prices based on consumer spending patterns. In our opinion, it is not a good gauge of whether the cost of living is rising or falling. The Guild Basic Needs IndexTM focuses on certain food, clothing, shelter, and energy (used for cooking, heating, cooling, and transportation) components to give a truer measure of where the underlying costs of living in America are headed.

As expected, recent moves in certain commodities are pushing our GBNI higher. The unique aspects of the GBNI are that it is not seasonally adjusted, and the components within the index (and their weightings) are not managed or manipulated. The GBNI monitors the cost of the basic necessities of life. It ignores the cost of electronics, video games, computers, grooming services, and other non-basic items. The GBNI is designed to reflect the underlying prices of four basic items that one needs: food, shelter, clothing, and energy (for heating, cooling, and transportation).

Today, the index is putting us on notice by flashing a yellow light that higher prices are on the horizon. The cost of food, energy, clothing, and shelter are beginning once again to move upward after a hiatus created by the melt down in housing prices, the decline in energy prices, the fall in the price of certain fabrics used to make clothes, and the moderation the cost of food as a result of the economic crisis that began in 2008.

After the banking crisis and global economic slowdown that began in 2008, the price of basic needs declined for a few years. Now, we are seeing the effects of the money printing by many countries in order to stimulate the value of assets and counteract the deflationary effects of the crisis. This effect, combined with increasing demand from China, Brazil, Eastern Europe, India, and other countries where standards of living are rising is increasing the prices of basic needs.

Today, the raw costs are increasing. Over the next few weeks and months and continuing into the future you will see higher prices at the checkout stand as these costs filter into the prices of the goods that you and your fellow consumers purchase.

Inflation in basic needs is coming.

July saw a jump in the prices of certain basic needs. When will we see it at the checkout counter?

guild basic needs 31 jul 2012

Track the Price of Basic Needs

Charts courtesy of

Source: Guild Global Market Commentary

Tony Danaher

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