With all that is going on in the world, you may be wondering what higher inflation would mean to your weekly budget. There have been plenty of headlines about the higher cost of food, gas, oil, and most other things a family would require to live their everyday life. And certainly you have had personal experience at the gas pump and grocery store with higher prices.
But you are certainly wondering, what if we had explosive inflation? Many reputable economists have hinted at the outside possibility of this. Extreme inflation is called “hyperinflation” and the most often cited occurrence of this was Weimar Republic era of Germany (the period before WWII). Perhaps you have seen pictures of people with wheelbarrows full of worthless currency going to the store to buy bread. Nonetheless, if you want to experience a little taste of high inflation right now, then get some inflation training by shopping regularly at Whole Foods.
Whole Foods offers us a glimpse into the future of higher food costs. Why? Lets look at their website where they discuss their focus on locally-grown produce. Since they are buying locally grown, they are often paying for food that reflects the higher cost of organic fertilizers and more importantly, reflect AMERICAN WAGE LEVELS. This is the future of prices – as Jim Grant outlined in his latest Interest Rate Observer (subscription required), when we run out of cheap labor sources.
As the world requires more food (the Chinese want to eat more meat for example, and it requires much more corn to provide a calorie of beef than a calorie of straight corn), and we run out of people to grow it with cheap labor, food grows increasingly expensive. We can see this happening now. Look at this 2 year chart of corn. This is the result of worldwide increases in demand for livestock and food in general (and with an extra kicker from the ethanol boondoggle, I mean ethanol program).
As more and more third world countries develop, their laborers will demand higher and higher wages and eventually, food will no longer be cheap. Perhaps you may want to be prepared for this. However, since you can’t start your own farm (well most of you can’t), you might as well prepare to pay higher prices. For example, looking at two super markets in my hometown (Medford, MA), we can see that a sirloin special at Stop & Shop, a popular local grocer costs $6.99/lb but it costs $7.99 at Whole Foods (note these 2 circulars may expire by the time you read this – but also note that the $1 difference is 14%!).
Another example: I enjoy eating berries and from personal experience, the cost of the organic raspberries, blueberries, and blackberries at my local Whole Foods tends to be 50-100% higher than the non-organic berries at regular grocers.
So is the country ready for this inflation training? Apparently not – from the recent news about people fleeing from Whole Foods and choosing to go to Walmart instead, we can discern that people are looking to save money on their weekly expenses. This BusinessWeek article (which even mentions a woman ditching Costco and Bj’s for Walmart) especially hits the issue. is the US ready for higher inflation on gas and food? Can we just smile and pretend this will all go away? If the stampede of shoppers running from Whole Foods and other high end purveyors to Walmart is any indication , we are not ready for this inflation and pretending it will go away will not work.
Take action now to eliminate and/or lower your fixed costs. Read my other post HERE for further discussion on the topic of lowering costs. I may sound like a loony bunker digger, but understand, this problem is real and the only way to fight it, is to take action ourselves – no one is going to bail you out. Good luck out there…
Editor’s note: report on “hyperinflation” from Shadowstats.com here
Chris Grande
5.15.08
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