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All signs point to stagflation

Getty/iStockphoto Stack of one hundred dollar bills.
Global GDP growth is accelerating lower, and that’s cause for concern.

There’s an awful lot going on in the world right now. Liquidity and global growth are in decline, while global supply shortages are rapidly rising. That last statement sounds an awful lot like stagflation, which occurs when inflation is high, the economic growth rate slows, and unemployment remains steadily high.

The Food and Agriculture Organization tracks the monthly change in international prices of a basket of food commodities which predominantly include cereals, vegetable oils, dairy, meat and sugar. This FAO Food Price Index rose 1.2% in September to 130 points, which is 32.8% higher than September of 2020. The index was led by cereals and vegetable oils, while dairy and sugar prices were also firm.

The only sub-index that has remained stable is the price of meat. Looks like food inflation to me.

Energy higher too

A brief look at the weekly chart of energy futures values, pictured below, makes it painfully obvious that the price of food isn’t the only thing moving higher. It’s funny how talking heads have suggested over the last several months that if food and fuel values are taken out of the equation, inflation isn’t that bad. In other words, if we can just ignore the price of goods we need to survive, everything is fine.

Weekly chart of energy futures values

Weekly chart of energy futures values.

The chart below shows Global GDP growth over the last 60 years. While the trend has been down, the recent acceleration lower is cause for concern.

Concerns regarding China’s growth have recently resurfaced. China’s credit impulses have been a mainstay as an indicator of global expansion and contraction. While America’s focus is generally on the Federal Reserve and its ongoing mission to inflate asset bubbles forever, China’s credit bubble is no longer expanding.

GDP growth chart over last 60 years

GEP growth over the past 60 years.

It appears we have identified inflation in the products that matter to the day-to-day existence of humans. A decline in global growth has accelerated due to COVID, and more recently, global supply chain shocks. The Just-In-Time logistics model that once appeared to showcase efficiency has all along been a fragile and tighly interconnected system of codependancy.

And now, unemployment

The last part of the stagflation equation is unemployment. Most recent unemployment figures from September showed the unemployment rate dropped to its lowest rate (4.8%) since it peaked at 14.7% due to COVID and the restrictions that followed. While this sounds peachy, the Labor Force Participation Rate has been in decline since the turn of the century.

U.S. unemployment rates

U.S. unemployment rates.

The conditions for stagflation appear to be set. Considering that stag is a term for a lone male deer from the late 12th century, if stagflation truly sets in, we’re all on our own.  As always, feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT. We are here to help.

Reach Brian Splitt at 847-946-2080 or [email protected].

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The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

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