New ag reports point to inflation in food prices
posted at 12:15 pm on November 10, 2010 by Ed Morrissey
Fresh on the heels over the debate of whether and when inflation hit food prices, the Department of Agriculture warned yesterday that, well, inflation will hit food prices — and hard. Projected crop yields, combined with production issues and higher demand in Asia, have put food commodities in an “alarming” position, according to analysts. That’s good news for farmers, and bad news for just about everybody else:
The agriculture department on Tuesday cut estimates of US corn yields for a third successive month, forecast record soyabean exports to China and warned of the slimmest cotton stocks since 1925. …
Benchmark Chicago corn futures soared above $6 a bushel for the first time since August 2008, before ending lower. Soyabeans rose 4.3 per cent and New York cotton futures posted a record above $1.51 a pound. The price rises have revived fears of a repeat of the global food crisis of 2007-08.
In Europe, milling wheat surpassed a peak reached after Russia banned grain exports in August in response to a devastating drought.
Corn was a special concern. The staple crop’s projected yield has now been revised downward twice, and the bumper from this year has hit a 15-year low. One of the culprits in this shortage is ethanol production, which has again increased demand, taken more of the harvest, and raised prices. Those price impacts will be felt in direct costs to consumers for corn-based products, and also from beef prices influenced by the price of corn-based feed.
This report comes in the middle of a debate over the Federal Reserve’s plan for a second round of “quantitative easing,” which essentially prints money in order for the Fed to buy US debt through Treasury bonds. Sarah Palin warned that inflation had already hit grocery store prices, hitting American consumers in their pocketbooks for staple items, a claim at which the Wall Street Journal’s Sudeep Reddy scoffed while its editorial staff supported Palin. Reddy later rebutted criticism by writing that Palin had the time frame wrong and that inflation hadn’t occurred until very recently.
That, however, is irrelevant to the question of the Fed’s QE2 policy. With inflation on food on the rise now and Ag warning of even more inflationary pressures, the last thing American consumers need now — at least at the grocery store — is the prospect of artificial inflationary pressure being added by the Fed, with the backing of the Obama administration. Weakening the dollar and intentionally stoking inflation will erode the buying power of Americans during a long period of joblessness and underemployment, and the price increases will force consumers into buying less in the long run, not more, which will delay a recovery in the sector where the US most needs it, in consumer activity.
Update: John Podhoretz writes that the QE2 action says something very disturbing about the grasp that the presumed experts have on the American economy:
But whether you think it’s a sound or unwise action — and people I trust are inclined to think it’s a disaster — QE2 is a deeply disturbing sign: It suggests that we have reached the outer limit of what experts actually know about the condition of the American economy in the wake of the 2008 financial meltdown and how to repair it. . . .
Even the Fed and its chairman Ben Bernanke know they have undertaken something very risky.
The obvious risk is that, by suggesting that the United States may try to escape its economic doldrums via the monetary printing press, it will create an inflationary spiral and destroy confidence in the stability of US currency.
The less obvious risk is that QE2 will prove ineffectual. If it doesn’t move the needle on the economy at all, but rather seems simply to fall into a black hole, that will confirm the unnerving and growing sense that we are headed for an extraordinarily extended period of extraordinarily low growth and extraordinarily high unemployment.
In other words, Hayek was right; national economies are too complicated for top-down direction. Glenn Reynolds wonders when the “experts” will get to the really exotic solutions:
Yes, it’s pretty clearly a sign of desperation. But nobody in government is desperate enough to try cutting taxes, government size, and regulation yet. When they’re willing to try that, we’ll know they’ve run through all the other alternatives . . . .
To be fair, Ben Bernanke can’t do any of those things, which is why he’s stuck instead with QE2. Congress and the President can do those things, but so far obstinately refuse to do so — which is why we just had the largest midterm turnover in Congress in 72 years.