Whatās Going On Here?Data out late last week showed that a key measure of food prices rose for the ninth month in a row in February ā to its highest in six years. What Does This Mean?The last time the United Nationsā gauge of global food prices rose for this long was back in 2008, and it was followed by a major food crisis. This time around, though, the most affected countries will probably be emerging and frontier markets: those that are more reliant on ingredients like rice, whose price rose 76% last year. Thatās definitely not good news for Nigeria, whose average household already spends half its income on food. The irony is that this jump in food prices is partly down to another emerging market: Chinaās been buying up huge amounts of crops from around the world as local weather threatens its harvests. Why Should I Care?For you personally: Itās trickle-down economics at work.
Developed markets like the US and Europe should be relatively insulated from rising food prices, but theyāre not immune: food producers will likely try to pass their higher costs onto food retailers, which will, in turn, probably pass them onto you. Thatās not ideal: economists are hoping youāll put any money youāve saved during the pandemic toward economy-boosting nice-to-haves, but you wonāt have as much to spend if youāre paying more for the essentials. Itās not the thought of your pursestrings thatās keeping the experts up at night, mind you: if you donāt spend, the global economy could well fall short of growth forecasts.
For markets: Inflation, inflation everywhere.
Food prices arenāt the only reason investors are getting worried about rising inflation: the oil price just hit its highest level since April 2019. Too-high inflation would encourage central banks to effectively increase interest rates, which is why some investors have been selling off bonds and the priciest stocks in preparation. | 