Friday, 13 June 2008

At least farmers are doing well.

There is a widely held idea that our growing inflationary difficulties all come from abroad. It is fuel prices and not domestic factors that are pushing prices upwards.

It would be so much easier if that were true. Producer price inflation is now up at 9 percent. The PPI has a sub-index that covers home produced food. During the last six months, the index has grown alarmingly. In April, home produced food inflation was growing at 32 percent.

(data source: ONS, the data code is YZYM)


Anonymous said...

I repeat, this means nothing at all to the consumer unless the vendor can pass the price on.

Food, yes. Petrol, yes for the short term before behaviour adjusts. Discretionary good, no.

Then there's the zero sum aspect. Unless money supply increases, increases in food mean decreases in other things.

The probable result is food and energy take up a higher proportion of household income (but lower overall usage) and everything else gets squeezed. Imported goods retain pricing power internationally and thus Brits consume less of them.

The big hit will be in service sector and any goods that command a high enough margin that supernormal profits can be reduced down to mere normal, so it's still worth the vendor selling them in the UK as well as abroad. Here I'm thinking of electronically duplicated media (e.g. games, dvds) and beer and branded goods.

The UK will become like Thailand - you still go to see the latest movies but the price is less than Europe and the cinema is grotty.


farmer jones said...

Get ooff my land...

VADO said...

This looks like a local case of speculation.

CWS said...

Nick, Vendors do have some market power, so they will be able to pass the increase on, although it might mean a reduction in output.

The money supply continues to grow quickly, despite the credit crunch. The BoE is still accommodating the commodity price shock.

aSteve said...

Farmers, likely, aren't doing well... for example... cattle farmers import much of their feed... which represents a significant proportion of their costs. Many/most UK farmers will be feeling the pinch just like the rest of us... especially as, in less affluent times, British buyers will become more price sensitive and shun the luxury end of the market which farmers have been encouraged to target throughout the boom.

Can you imagine many people driving 20 miles to a farm-shop to buy "dirty" eggs for twice the supermarket price in the near future? No, me neither.

Anonymous said...

As a farmer of arable crops (wheat/barley/oilseed rape) I can confirm that while yes, prices are considerably higher than a year ago, so are the input costs. Fertiliser has doubled in price in the last year to 18 months, fuel prices we all know about, and every other supplier is taking the opportunity to raise prices too. So my margin will not be much higher this year than last.

Agricultural products now are linked to oil prices - both because they use oil to be produced (diesel in the machinery & in the manufature of fertiliser) and because they are now an oil substitute - biofuels.

credit savvy said...

i agree a pure speculation

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