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Ask Money

Food inflation, or, why bacon is a good investment

Raghu Manavalan Apr 11, 2014
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Ask Money

Food inflation, or, why bacon is a good investment

Raghu Manavalan Apr 11, 2014
HTML EMBED:
COPY

If you’ve noticed your receipt from the grocery store seems larger than usual, you have food inflation to thank.

While the prices of everything usually go up due to regular boring inflation, commodities like food have outpaced other goods.

Matthew Boesler, Business Insider reporter, says food inflation is increasing because of a few different factors.

“A lot of it is due to weather. We have a big drought in California. We’ve had dry conditions across the Midwest, the Great Plains regions,” Boesler says. “The extreme weather events serve to disrupt crop supplies. and that can drive prices up.”

“Another factor you have is the ‘financial-ization’ of these commodities markets,” he says. Hedge funds and other investors are increasingly pouring money into goods like beef and coffee. “It’s very easy for an investor to bet on rising commodity prices. And no one really bets on those prices going down, so you have a lot of one-way money flowing into these markets, and they can become quickly overwhelmed because [investment markets are] not designed for that.”

Data: Bureau of Labor Statistics

 

“Supply and demand sort of governs the price of a commodity, but the way these markets are set up and you know, given how much capital is flowing seeking investment opportunities, the jumps in prices can be very volatile and large.”

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