Select Page

Two days ago, the Food and Agriculture Organization of the United Nations published its Food Price Index. Like every analyst and observer these days, I think it’s crucial to pay attention to these developments. And I have been telling you how central banks have been mainly insisting on the transitory effects of price increases. Economists are indeed used to characterize inflationary behaviors by using words and a semantic that lead to an infinity of fruitless debates, in my view. The last few weeks are showing that the heads of the two largest central banks in the world are now shifting gear. They are now moving away from that transitory characterization. But are they noticing this white noise that seems to indicate a deeper structural shift for food globally?

The last numbers released by the FAO at a global level are confirming that something much deeper is happening. They are also highlighting that these levels of characterization mentioned above are certainly exposing us to the risks of maintaining our blindspots. Indeed, what matters the most here is to pay attention to the impact that these transitory behaviors will have on more vulnerable populations, from industrial countries to emerging countries. The fact that inflation is labeled as transitory could give us the false impression that it will pass and that everything will return back to normal, as usual. Of course, it will get back to normal. We all know that. But for how long and with what kind of impact and pain on more vulnerable populations.

If you look at the FAO food price index in 2021, and compare it to the last 2 years in 2019 and 2020, you can see that the “snake of inflation”, as I prefer to call it, is already rearing its head way above the ground.  In 2019, that index was below the base of 100 which represents the reference period of 2014-2016. Let’s call it the “Coiled Snake of Inflation”. In 2020, it coiled on itself even more for most of the year but woke up at the end of the year. It rose much more sharply in 2021 and continued to rear its head well above the base of the 2014-2016 period. It ended 2021 well above that base, 30 to 40 points above it for more than half of 2021. We are starting 2022 at that elevated plateau. The question now is not just about whether it is transitory or permanent.

I know the Arizona desert very well and one of the crucial skills to develop there when you take a walk outside in the high deserts is the ability to watch out for rattle snakes. It’s crucial to learn about them and how they behave. One of the things a rattle snake does when it’s about to strike is to go through several phases.

If you want to stay out of trouble, you to know about how they are capable of using just a portion of their whole length to literally jump and strike. They have that unique capacity to project themselves forward, about one third to half of their own length; a 6 foot rattlesnake is able to jump between 3 to 4 feet.

So, is the inflation we are noticing right now, about to jump forwartd and diffuse its venom far deeper than imagined. We need to pay attention to these white noises that structural changes are likely to bring in the coming decade. So much of our system is tied to this one source of energy that we have used so far in the last 100 years or more. Let’s not fall into the illusion that these transitory pressures are due to the effects of the pandemic. And if they are just temporary, then what about the length of that transition and the effect it will have on more vulnerable populations, regardless of where they are, in poor countries or in industrialized ones.

You can listen to this post here on the SR66 Report podcast.

%d bloggers like this: