Saturday, August 29, 2009

The Debts of the Spenders: US Food Prices Slowly Rise

Here's another bit that is sure to add fuel to the ever popular inflation/deflation debate (especially in light of yesterday's large visitor numbers re: the China gold story). After reading the following piece, I have included a link at the bottom of the page to Zerohedge thats show what deflationists have long been arguing: there IS an increase in money supply. . . but it is locked in excess bank reserves (the vast majority held by the Fed) and is not in circulation. Lower velocity of money is a strong deflationary signal.

Economist: US Food Cost Growth To Slow On Econ,Commodity Prices

After two years of above-average food price inflation, the rate is expected to return to more normal rates next year. Corinne Alexander, an agricultural economist at Purdue University, expects 2010 food prices to increase between 2.5% and 3.5%, well under the record 5.5
% that was set in 2008. The 10-year average for food-price inflation, from 1997 to 2006, is about 2.5%, she said in a release.

“One reason we’re not seeing prices go up so much right now is we had a massive recession that caused people to cut back,” Alexander said. In July of this year, the cost of food purchased for the home decreased 0.9% from the same month last year, much lower than usual and lower
than the September, 2008 peak of 7.6%. Food purchased away from home, such as in restaurants, increased 3.2% this past July from the same month last year. That was about average, and lower than the December 2008 high of 5%.

Several factors have been driving the decline in those inflationary numbers, Alexander said. Significantly lower commodity prices, as well as the lower cost of fuel, have been major contributors. “Grain prices peaked last summer. We had $8 corn. We had $13 wheat,” Alexander
said. “We also had $147 per barrel oil.” The recession also slowed growth in developing countries, reducing the demand for meat and other food exports.

That has increased the supply available in the United States, driving down the price.

Source CME News For Tomorrow


No inflation unless money comes out of bank reserves.

[quote]So if all of this printed money is being used by the Fed to purchase toxic assets, where is it going?

Excess reserves, of course. Counting for $833 billion of the Fed's liabilities, the reserve balance with the fed has skyrocketed almost 9000% YoY. Excess reserves, balances not used to satisfy reserve requirements, total $733 billion, up over 38,000%![/quote]
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