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Agflation, stagflation - call it what you like but it is still inflation and all Agflation refers to is inflation of rural commodities. Look at what has happened over the last few years with wheat - as an example:
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The rich mans’ grain has almost quadrupled in price over the last two years and whilst we have seen a major pullback in recent weeks, over the next few years we will see potentially a further doubling from here. And then the mother of all recessions will arrive that will make this muted recession look like a mere blip.
You might debate the issues that have brought about this price sky rocketing of grains. Yes I hear stocks are the lowest in 30 years. Sure we hear about the move to bio fuels and the impact of climate change, but these are only the sideshow issues.
The ‘why’ is even simpler than all those issues which are so amorphous that it is tough to measure such impacts with any great sense of confidence. It is simply supply and demand.
It is not about world wealth increasing as it is ludicrous to talk of ‘wealth’ when so much of the world’s population still starves but what we can say is that world ‘affordability’ is much improved. The massive population blocs where affordability – such as China, India, South America – the BRIC and surrounding economies – has improved has been as a result of the global economic boom.
Affordability will continue to rise but then the very basis of this affordability will be the cause of the implosion that will occur some years ahead.
Rising inflation – in all its forms - will eventually kill the golden goose.
Enjoy the ride
Tom Scollon
Chief Analyst
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