Next interest rate decision

free4440273

wheat prices are soaring on the futures market at the moment. from a purely 'selfish' viewpoint (although i'm not the only one) i don't work - been made redundant - and my savings matter. It's all relative but i just end up comparing what i earned on my savings (fixed-rate bond) in Oct 2004 and what i will be earning on the bond (exact same sum of monies to be invested) when it expires Oct 2007: the difference is abysmal when you compare inflation rates from then and now.

RHemmings

Many "fundamental" food prices should be soaring, such as wheat prices. But for some reason food prices have been dropping in many cases. I'm sure that Sainsbury's teacakes have gone down a lot. The wheat noodles that I buy have gone down. Pasta has become cheaper. So, what's happening?

free4440273

I also do my best to 'contribute' to MS Old Style and interesting to note that the ladies over there, just today in fact, have reported/are reporting substantial increases in food produce - and i did NOT start the thread

Generali

Food prices as paid by the consumer are made up of a lot more than just the raw materials unless you're in the habit of buying your own wheat and milling it.

Farming Today this morning (I'm an early riser) talked about the market cost of meat being 60p in the quid on the butcher's slab. On that basis food materials costs become an even smaller part of CPI/RPI (about 5%).

OSMS is a pretty self selecting group. I contribute now and again as I have an interest in food and like to suggest recipies. My guess is that most spend more than is typical of their monthly income on essentials. Annecdote isn't datum.

Anyway, according to RHemmings's post above, Let Them Eat Teacakes!

ashcarrot

RHemmings wrote: »

Many "fundamental" food prices should be soaring, such as wheat prices. But for some reason food prices have been dropping in many cases. I'm sure that Sainsbury's teacakes have gone down a lot. The wheat noodles that I buy have gone down. Pasta has become cheaper. So, what's happening?

There was the asda challenge to drive down prices which may have caused a price war.

Generali

ashcarrot wrote: »

There was the asda challenge to drive down prices which may have caused a price war.

Which, unless you're a real monetary purist, means inflation falling. At least in the area of food and the NFIs that supermarkets sell.

epz_2

from watching landward etc the price of food stocks have been raising worldwide based on the increased consumption of china, movement of production to biofuel, increased energy and hence fertiliser costs and a whole bunch of other factors that can be solved in the medium term but that the 40% rises will still feed through.

the problem with the food market if you go by most reports the there is almost no slack in the supply chain, farmers are heavly mortgaged and basicly runny on declining subsides with everyone getting squeezed to make profits for supermarkets.


likewise while the supermarkets profits are vast but they also run seriously lean operations, and while they are constantly expanding i doubt they can expand fast enough to cover a hike in costs that big and maintain profits. a really cant see the big supermarkets seriously taking a cut in profits when there is high employment and so i would imagine it will eventually result in price rises.

so by my simple maths 40% * 8% = 3.2% from food prices, 1.2% over target, could be wrong though.

Generali

Food prices are made up of a lot more than the farm gate price. Ask any farmer how much they get for their milk or whatever and they will tell you (at great length) that it doesn't compare with what you pay in the supermarket.

Add in the fact that most people eat a lot of processed food (of which an even smaller %age is farm gate costs) and also that there is huge amounts of food produced by very efficient and low cost producers in places like Brazil and Argentina that will be imported if prices rise quickly and it is my opinion that food prices are not a big issue in inflation in the near future.

The big issue for inflation is the value of the pound due to the high level of imports into the UK. If there's a run on the quid, inflation will rise rapidly. The BoE will act quickly in that instance.

PS - epz, your maths is correct. However, if food prices rise by 40% they may well take a larger proportion of spending and so wil be reweighted to reflect that causing a greater rise in inflation.

Jonbvn

The Times are reporting on increasing wheat & bread prices this morning.

http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2383749.ece

Premier Foods will force shoppers to pay up to 8p more for a loaf of Hovis after raising the price of bread for the second time this year because of an “unprecedented” surge in wheat costs.

Generali

This makes my point very nicely. If you click the wheat prices article link next to this is states that they have risen by 53%. The price of bread hasn't risen by nearly as much as that.

I was reading a piece recently about a row in France as to whether wheat makes up 5 or 10% of the price of a baguette.