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Tag: Commodities

The Best Ways to Profit from Food Inflation- Money Morning

Though tame through most of last year, food inflation has begun to surge again in 2013 – just as Money Morning Global Resources Specialist Peter Krauth predicted it would.

“Food inflation hasn’t reared its head for some time, and I think it’s about to start making headlines again before long,” Krauth wrote in a Jan. 18 note to subscribers of his Real Asset Returns investment service.

Sure enough, an inflation report yesterday (Wednesday) from the Labor Department showed that the biggest increase in January prices came in the food category.

Food prices – for both groceries and food eaten at restaurants – rose 0.7% in January, compared with December, accounting for more than three-fourths of the increase in the Producer Price Index (PPI).

The biggest driver of food inflation in January was the cost of vegetables, which rocketed 39%, withbroccoli, cauliflower and lettuce increasing the most.

The U.S. Department of Agriculture’s Economic Research Service is projecting food prices in 2013 will increase 3% to 4%, an annual increase the agency says is above the historical average.

The ERS said it expects animal-based food products (mostly meats) to be hit hardest, with cereals and bakery products also seeing above-average price increases.

The return of food inflation to the U.S. should come as no surprise, as it has become a worldwide trend over the past decade.

The Food Price Index developed by Food and Agriculture Organization of the United Nations has more than doubled from 97.7 in 2003 to 209.8 now following a decade of stability. (The index stood at about 102 in 1993.)

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Why Commodities Investors Can Expect Sunnier Days Ahead – Money Morning

During the current commodity supercycle, there have been occasions-too many to count-when investor psyche has been damaged by reports about slowing U.S. growth, a hard landing in China or a debt crisis in Europe.

Yet just behind the gloom, significant and positive trends are taking hold, causing the storms to start dissipating.

I often say that government policies are precursors to change, which is why we follow the monetary and fiscal actions closely as they can have a significant impact on asset prices.

You have to go back about 16 months when Brazil kicked off the latest global easing cycle by cutting interest rates by 50 basis points. Since then many developing countries such as the Philippines, China and Colombia, as well as developed nations of Japan, the European Central Bank, the U.S. and the U.K. have joined forces in a world-wide synchronized stimulation of the economy.

Last summer, Mario Draghi indicated that the ECB would do “whatever it takes” to save the euro. In the fall, the Federal Reserve agreed to buy $85 billion a month in Treasuries and mortgages, amounting to $1 trillion a year.

And just recently, Japan announced that, in addition to pumping $1.1 trillion into the markets through 2013, the central bank will keep an open-ended approach to buying assets through 2014.

Historically, central banks’ policy actions occur after there’s been some economic deterioration. Several months later, the stimulative measures work their way through the global economy.

This has been the case with China, which has been showing remarkable improvement in its export-oriented HSBC Purchasing Managers Index. The PMI is a measure of health of companies in China, as it includes output, new orders, employment and prices across numerous sectors.

This month, the Flash PMI came in at 51.9, beating market consensus, which was at 51.7. The PMI stands at a two-year high, as you can see in the chart below.

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