Economic Outlook
July 17, 2012 Posted by:
Joe Morgan, CFA
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
Food prices have been on a tear lately. In fact, grain prices are up 17 percent this month and look poised to rise further as the extent of this year's drought looks to be extreme.
This story has legs because it is a dramatic increase in the cost of something we all need (a Google search for "food prices" restricted to the most recent 24 hours returns nearly 16 million hits). But does it really matter to overall inflation?
The answer is "No" - and that shouldn't be too surprising.
The Bureau of Labor Statistics puts food at 15 percent of its overall consumer price calculation, meaning even a swing of 20 percent would only contribute a +3 percent to the overall calculation.
In addition, much of the recent run up in food prices has been offset by falling energy prices. In particular, gasoline prices (which are 5 percent of CPI) are down 14 percent since peaking in March according to Bloomberg.
This is the view from a macro level, but upon closer inspection, we all live our lives differently. Those living hand-to-mouth will suffer more as food prices are a much higher percentage of their total spending.
But regarding potential market action, food prices are being ignored.
The chart below plots the market's inflationary expectations and the Fed's stated target of 2 percent. In this case, it doesn't look like money is being put where mouths are. .jpg?n=6472 "Are Markets Predicting Inflation?")
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
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Are Markets Predicting Inflation?July 17, 2012 Posted by: Joe Morgan, CFAThe views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
Food prices have been on a tear lately. In fact, grain prices are up 17 percent this month and look poised to rise further as the extent of this year's drought looks to be extreme.
This story has legs because it is a dramatic increase in the cost of something we all need (a Google search for "food prices" restricted to the most recent 24 hours returns nearly 16 million hits). But does it really matter to overall inflation?
The answer is "No" - and that shouldn't be too surprising.
The Bureau of Labor Statistics puts food at 15 percent of its overall consumer price calculation, meaning even a swing of 20 percent would only contribute a +3 percent to the overall calculation.
In addition, much of the recent run up in food prices has been offset by falling energy prices. In particular, gasoline prices (which are 5 percent of CPI) are down 14 percent since peaking in March according to Bloomberg.
This is the view from a macro level, but upon closer inspection,...
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