Wednesday, October 8, 2008

What happened to food inflation?

China's CPI still seems to indicate "inflation" in food prices, but most prices seem to be on the way down. The August CPI overall shows 4.9 percent inflation and meat 8 percent.

Average retail prices through September reported on the Price Bureau web site show that prices are falling and close to their year-earlier levels. An article on the Ministry of Agriculture web site refers to plummeting hog prices in "Hog Industry Black September" and uses language like "disaster" and "landslide" to describe the hog price situation. As reported earlier on this blog, prices are falling below break-even levels and there is a growing sentiment among farmers to start reducing hog inventories.

Vegetable oil prices are still above year-earlier levels, but falling:

Pork and cooking oil experienced the biggest price hikes in 2007. Looking at Chinese cabbage (Da bai cai) as an example of a quite different food commodity, we see a spike around the February winter storm disaster, but prices this year are now tracking last year's and no sign of inflation. By the way, 1 yuan per 500 g. at the current exchange rate of 6.8 yuan/$ is roughly 16-cents/lb. Not many vegetables in my Safeway at that price.

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