Rising Food Prices; Supply Chain Disruptions
By Osama Rizvi; Energy and Economic Analyst at Primary Vision Network
Primary Vision Network has, since the start of this year, highlighted two things very categorically. One is that inflation is here and here too stay (not “transitory”) and second, that due to supply chains disruptions, owing to both COVID19 and catastrophic weather events, food prices will continue to increase. Both developments are not only not healthy for the global economy but also carry serious risks of morphing into protests or full blown unrests in different countries. The recent events in Iran due to water shortage is just one example.
Last month, the UN’s world food price index took a slight dip but this month, unfortunately, it is back to its previous level. We are back to the highs that we saw in 2007 and 2010. There is another challenge that awaits us i.e. subsidy cuts, which will be a bigger problem. Food prices are 33 percent higher than an year earlier. Also, decreasing forex reserves is also playing its role in keeping inflation up, making food prices even worse.
The chart below paints a terrifying picture especially for the everyday consumers.
This isn’t the only ECON show where we highlight such concerns but we have been doing this, almost, on a regular basis from many months. Interestingly, main stream media outlets have started to come up with analysis that only confirms what Mark through his videos and I through my articles tried to highlight. Take a look at this recent development: UK’s Consumer Price Index (CPI) inflation rate jumped to 3.2 percent in August up from 2 percent in July and the 1.2 percent jump between July and August is the largest since 1997 with the overall CPI rate is highest since March 2012. What contributed mainly to this increase? You guessed it right, food prices along with shortages of workers, surging prices of second hand cars (once again owing to the supply chain disruptions causing manufacturers to delay or curtail production as long they get their hands on those semiconductors), energy bills and rising rents. According to UK’s Office for National Statistics (ONS) jump in food and drink prices by 1.1 percent in retail market, in terms of rate of growth this is the highest since 2008.
Nestle, recently announced that it may be raising prices as it expects the current inflationary pressures to continue into next year as well (2022). According to Jeffries, F&B businesses in Europe have experienced sharp spike in cost – “on average a 20 basis point increase in incremental basket inflation relative to mid-May”. Transportation, packaging and distribution contributed the most. This also ties well with the recent rise in different indexes such as World Container Index has risen 350 % compared to 2020 and Logistics Manager Index stood at its 3rd highest level since it started. Also, as we have highlighted in previous shows the difference between prices received and prices paid continues to widen and it and it was only a matter of time that this was going to be passed on the the customers. Nestle has just said they will, others will follow.
Bottlenecks in Supply Chain continues to affect the businesses. Take a look at this chart below.
Not only this but frieght rates continue to increase and in August, last month, they registered the largest yearly gain in 15 years! As we move forward, this will not get better given that other disruptions still exist. A relevant factor is the congestion at U.S. ports (chart below).
One can continue to highlight all-things-wrong in the global economy and headwinds in the face of recovery but of course, I will stop. The point here is that businesses and consumers should embrace themselves for more inflation. Food prices will continue to rise and, as mentioned above, may cause unrests and political instability. It is going to be a tough year for policy makers across the world and by the look of it, I believe the next one will be even tougher.