It seems like more and more when I get back from buying anything at the store I have less and less. I went to get groceries and I came in saying, "You know, I remember when groceries averaged $20 a bag, and now you cant even touch them for that...". Well, it's true. Wholesale prices rose the most in 36 years last month. The chart below shows the CRB foodstuffs index.
What is going on? Well, how about a quick look.
Oil) Oil was $1.61 per gallon in January of 2009. Today it averages $3.54 a gallon today, a 120% increase in just over two years. Everything gets transported in one way or another and oil is consumed. The further it travels the more it costs.
QE) Quantitative Easing. Look back at my older post for an explanation on QE2, and my thoughts about it making commodities go higher. Oil, Gold, Silver, Wheat, Beans, even Coffee. It's an explosion of food price increases across the globe, including Cabbage. Yes Cabbage! In third world countries this is enough to start revolutions, since eating is the central task in life to them.
Now it's hard to prove that QE2 has been single handedly the cause, but consider this: The FED is pumping $70 Billion in cash per month into the World economy. The FED's balance sheet was $895B in September 2008. Today it's $2.55 Trillion! That's a lot of money floating around the world competing for the same products. Hence, higher prices.
World Unrest) Markets hate uncertainty. Uncertainty leads to hoarding of commodities for fear the World may run out of them. This drives prices up. Just look at Oil. Protests in the Middle East drove up our gasoline 50 cents a gallon in a few days. And the feuding countries only produced about 3% of the worlds oil.
Weather) Freezing crops in Florida and South America. Quakes and Tsunamis in Japan. Record snow in the Midwest. Flooding in the Northeast and fires in California. Food is more scarce this year, worldwide. Corn and Beans have nearly doubled in one year.
The question is, "Where does it end?" Well its one less bag of groceries or even two, if this persists.
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