Belfast Telegraph

Tuesday 2 September 2014

A grain of truth in the story of 2.2% inflation

You'd think that after going through one of the most momentous periods of economic turmoil in the last 100 years we'd all be better at predicting where vital factions of the economy are headed.

Not so it seems when it comes to inflation. For weeks and months now this column and many like it have been banging on about how we're in for an autumn of huge rises in inflation because of increasing food bills.

But of course, as soon as an economic commentator makes a prediction it's doomed to failure. Set it in stone and you'd be better betting the house on the contrary result.

So it shouldn't have come as a surprise that yesterday's UK inflation figures showed the consumer price index actually fell last month to 2.2%.

I know what you're thinking: "What about the drought in the US Midwest that forced up the price of wheat by some 20% which will in turn push up the price of other food, in particular meat, and drive up inflation to levels which don't come within a country mile of the central bank's target level."

Obviously we were thinking that too, but it seems we're not comparing like with like.

That's because energy prices spiked last September so the comparisons with this September aren't comparing apples with apples (ironically apples have shot up in price but that's another story) nor pears with pears (I'm not sure about the market for pears).

But it might be about time to heed warnings.

The lag between wheat in the US spiking in price and the cost of your daily shopping basket increasing is getting smaller as globalisation intensifies, but because of complex hedging mechanisms many big food firms can ride out short-term price fluctuations with no discernable effect to the consumer.

Not so for this rally which has been firmly in place in the grain market for some months and shows no sign of easing given a rotten autumn across much of western Europe which has led to delayed plantings of next season's crop.

This base foodstuff's rampant price rise will have an impact on the price of food around the world and, in conjunction with rising energy prices over the winter months, will - and I'll repeat that - will drive up UK inflation in the coming months.

There, you heard it here again. I'd get down to the bookies and bet on inflation falling.

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