Agflation Explained

Agflation Explained

Have you given much thought to the inflation of food prices? It’s something that should be on your mind if it isn’t, because we all have to eat.

In some instances, you may have noticed prices going up. But what’s causing it and what can you do to manage the impact on your portfolio?

Rising Food Prices

It’s no secret that some nations around the world are getting richer, but what you might not think about is how the growing wealth in these emerging economies might have a hand in driving up food prices. As people in these nations gain greater wealth, their diets change, and the price of food goes up right along with that.

Take beef, for instance. Did you know that it takes several kilograms of grain just to make one kilogram of beef? If you take a look at the food chain, you will see just where many of these price increases occur. Likewise, food prices can sometimes be affected by government intervention, like whenever ethanol is involved.

Some hot-button issues these days involve farm subsidies to American companies and trade barriers that can sometimes keep food prices inflated. Doing these things, some argue, would lower prices and reduce poverty as a result of new jobs and trade opportunities that would come with greater globalization. This was a point Alan Greenspan brought up often. Of course, there are some people who would suffer without those government subsidies, which would explain why they still exist.

The higher prices that you see typically benefit farmers as well as others in the food production business. Wealthy people who tend to overspend on food and don’t have it as part of their budget won’t feel the effects of higher prices, but the poor will, as food is often a significant portion of their spending. It could be argued, however, that urban poor would be hurt more by higher prices, but rural poor might benefit because of job growth.

If you have any questions about agflation or anything else related to investing, don’t hesitate to contact me and let me know what I can do to help.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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