The data release by the FED has caused a break out in real world inflation expectations. At this moment cotton is up 6.7% today alone, Oats are up 6.2%, Rice is up 3.0%, Corn is up 3.7%, Wheat is up 6.6%. These are all movements today.
These kinds of price moves in bulk foods that need to be imported by nations unable to feed their population will drive real world inflation. In the era of China exporting deflation, we now have the US exporting inflation. While the first impact level would be at home, the real picture is clearer over seas. In nations like China, where a family may generate 7k USD in revenue, food staples will consume as much as 50% of that cost. If the cost of food doubles in one year, the reality of the impact will be felt quicker.
The US is a food exporting mega nation, and with inflation in pricing in export markets like soft grains, the US will start to see a balancing of the trade with nations who need food. The largest impact of this kind of move, is if it destabilized the Chinese government control.
1.3 Billion hungry people is not exactly a win win for their leadership. The coming days and weeks will be interesting, as China already saw an increase in staple food costs in one month that in range with these moves today.
The Chinese nation may have to start a robust emergency food import and distribution process, if they expect to keep their rural based peasants in the countryside as food doubles in price in a month. The global economy has two economic models, both at extreme levels of risk.
The western market is experience real world asset deflation, while the emerging markets is experiencing real inflationary pressures in the cost of food staples.
Which one snaps first, and causes a change in the paradigm, controls the future… Ironically, today, the west is destroying “Capital” with Q.E. events, while the East is trying to preserve and grow Capital.
Democracy is no longer wedded to Capitalism…