Call it “trickle-down inflation.” It’s not just oil and gasoline prices that are going up now. A lot of other things are rising in cost as well, beginning with food.
That makes sense. When farmers and grocery stores pay more for fuel, they end up passing that cost along the production chain. Eventually, it reaches the consumer. The same thing with higher gas prices; the doubling of gas prices the past three years means the fuel component cost of a daily commute has doubled.
As reported April 5 by Reuters: “World food prices are likely to rise for a third successive month in March, and could gain further beyond that, with expensive oil and chronically low stocks of some key grains putting food inflation firmly back on the economic agenda.”
In the United States, prices overall — including energy and food — rose in February at a 2.7 percent annual rate, Esmael Adibi told us; he’s the director of the A. Gary Anderson Center for Economic Research at Chapman University. That’s down a bit from the 3.5 percent rate during most of 2011. But, he cautioned, March numbers when they are released will be much higher. “The data do not reflect the current increases in energy prices.” But that soon is likely to change.
In addition to the trickle-down inflation, as we’re calling it, Adibi cited two other factors. One is that demand for food imports is growing in China, India, Brazil and other rapidly developing economies. As folks in those places climb out of poverty, they’re chowing down more. Greater demand means higher prices. No wonder, according to BBC Asia-Pacific, obesity has doubled in China in the past decade.
The third factor is “bad government policies,” Mr. Adibi said, specifically the government’s ethanol program, which promotes turning corn into fuel. “So the price of corn goes up. That increases the cost of feeding cattle. So the price of meat goes up.”
There are exceptions to the trend toward higher prices. The computer industry continues operating under Moore’s Law, in which prices for hardware drop by half about every 18 months. And housing remains in the doldrums, which is good for buyers and renters, but bad for sellers, although that could be changing.
Of course, inflation is tinder for the political campaigns. Republicans are attacking President Barack Obama for the doubling of oil and gas prices during his term. But in eight years under Republican President George W. Bush, those prices also doubled. Remember when we were paying 99 cents a gallon for gas in 1998? And both Republicans and Democrats are eager to placate farm interests with the ethanol program.