The inflationistas are increasingly latching onto the global food inflation theme as “proof” of the impending hyperinflationary demise of the developed world. In general, you see charts of wheat and corn or other food products plastered all over the place with slogans such as “this is deflation?” With global food prices doubling in the last decade surely we must be on the verge of some sort of disastrous hyperinflationary debacle, right? Not so fast. Let’s actually look at the facts.
Is there global food inflation? Yes. I noted it this morning. Food prices have doubled in the last 10 years. It’s been a nearly unprecedented increase in food prices. Is it happening in the USA? Yes, but to a far lesser degree. Food prices in the USA are up 33% in the last 10 years. Surely that’s inflationary, but not catastrophic and definitely not hyperinflationary. All in all, inflation in the USA remains very low. 42% of the consumer pay stub goes to housing costs which are near record lows. Food accounts for roughly 15% of total US household costs. It’s much higher in emerging markets (30%+ on average) and therefore the food inflation is far more impactful in those economies. In the USA where home ownership is nearly 70% the cost of housing FAR outstrips the cost of food. In general, a developed nation doesn’t worry about putting food on the table, however, they do worry about putting a roof over their heads. An emerging economy, however, worries more about putting food on the table than putting a roof over their heads. Part of the luxury of being wealthy(ier) is that you don’t worry about starving to death. The inputs in the inflation story, therefore, are dramatically different.
I am not downplaying the threat of food prices in the USA, however, we have just witnessed a remarkable surge in food prices over the last 10 years and yet we see no signs of hyperinflation in developed countries. These trends have resulted in roughly 3% food inflation per year in the USA. If that’s scary inflation then I recommend you come out of that bunker (that you built in addition to your house) and stop worrying so much about what the Vietnamese are having for dinner tonight. Food inflation of 3%? Big deal. Besides, most Americans probably need to eat less anyhow. This country has a very real obesity epidemic. Perhaps a few years of higher than normal food prices would be a long-term positive….But even so, we’re not seeing signs of abnormally high inflation in food prices and it’s certainly not creating some risk of hyperinflation in the broader economy.