Real Inflation in Food and Energy. Here it is - Stagflation is next

Today, some Fed member, arguably of a Dovish persuasion, made headlines by saying that inflation was tame in all but food and energy. We are confident he is right. So for all those readers who are lucky enough to not have to eat, fill up with gas, or heat their homes, the following video from the NIA (National Inflation Association) on suddenly surging prices in virtually every vertical, is probably irrelevant. All others may be advised to watch it...

And just to make sure the point of the coming price crunch is not lost, the FT has just come out with an article titled, not too subtly,  "World moves closer to food price shock"

The world has moved a step closer to a food price shock after the US government surprised traders by cutting stock forecasts for key crops, sending corn and soyabean prices to their highest level in 30 months.

The price jump comes after the UN’s Food and Agriculture Organisation warned last week that the world could see repetition of the 2008 food crisis if prices rose further. The trend is becoming a major concern in developing countries.

While officials are drawing comfort from stable rice prices, key for feeding Asia, they warn that a sustained period of high prices, especially in grains such as wheat, would hit poorer countries. Food price hikes have already led to riots in Algeria and Mozambique.

“Stocks of corn and soyabean are at incredibly tight levels ... and the markets are surging to incredibly strong prices,” Chad Hart, agricultural economist at Iowa State University, said.

Dan Basse, president of AgResource, a Chicago-based forecaster, added: “There’s just no room for error any more. With any kind of weather problem in the upcoming growing season we will make new all-time highs in corn and soy, and to a lesser degree wheat futures.”

Agricultural traders and analysts warn that the latest revision to US and global stocks means there is no further room for weather problems. The crops in Argentina and Brazil, to be harvested soon, look fragile due to dryness.

Traders are particularly concerned about the cost of vegetable oil, key for developing countries such as China where an emerging middle class is buying more frying oil. The US Department of Agriculture said the ratio of global stocks-to-demand would fall later this year to “levels unseen since the mid-1970s, reflecting an accelerated pace of vegetable oil” consumption for food and fuel.

And yes, as we have been predicting for months, kiss those record "earnings" goodbye:

The shares of Deere & Co, the world’s largest manufacturer of tractors and combines, surged 2.3 per cent, approaching an all-time high. But food companies such as Nestlé fell as analysts said they would struggle to pass rising wholesale costs to consumers.

Struggle yes, and eventually have no choice but to do so. In the meantime, readers better familiarize themselves with the definition of stagflation, also known as 10% unemployment (12% when factoring in the collapse in the labor force), and $4 gas. And while at it, they may also look up the term "rice bubble" - in 3-6 months it will be all the world will be talking about.