Thursday 5 March 2009

It's A Bit Of A Puzzle

The question of inflation has been exercising my mind again. As I previously wrote, the pressures of the FEW (Food, Energy, and Water) are still driving the engine of inflation (see post). The good news is that petrol prices have stopped rising. Locally, they have stabilised at 87.9p per litre.

The bad news is that food prices seem to be racing ahead. A recent report in The Times informed us that, despite inflation falling, food prices are rising at an annual rate of 9% per annum (see article). This confirms what I am being told by those who go shopping, but contradicts what I am being told elsewhere. According to The Economist, food prices on the global markets have fallen by 6.4% in the past month, and by 34.9% in the past year (see source).

The obvious question that arises is how prices can be falling globally, and yet not be reflected at the point of sale. Some of the anomaly could be explained by currency movements (the Pound against both the US Dollar - in which most non-EU imports are priced - and the Euro - UK food prices are denominated in 'Green Euros' under the CAP). Whilst being sympathetic to this argument, one cannot but wonder if we are seeing another market failure in action.

The UK food market is dominated by an oligarchy of food giants, who have been accused of price fixing for years. Their profits have steadily risen for years against a backdrop of falling farm incomes. Is this how the food element of the Age of Scarcity will work itself out?

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