The Threat of Rising Food Prices in 2011

Here's the good news about food prices: Africa recorded record harvests in 2010 to feed the world's growing appetite.

Here's the bad news about food prices: Our appetite is still growing. Rising oil demand lifts ethanol demand, which raises corn prices. Drought in Russia hurt wheat supply. Floods in India hurt onion supply. Disappointing harvests in South America hurt soybean production. Food prices are already back to their 2008 highs after rising 32 percent in the second half of 2010. From BloBu:

Developing-world growth may push prices up further this year, says Gary Blumenthal, president and chief executive officer of World Perspectives, a Washington (D.C.) agricultural consultant. "Imperfect weather has collided with perfect food demand," he says.

And here's what the means at home. The Federal Reserve is injecting the economy with $600 billion this year because it wants to stir the economy out of low inflation. But even as core inflation is dangerously listless, food and oil prices determined by overseas supply and demand are rising as the developed world gets rich, hungry and mobile.

Typical Americans could be forgiven for thinking the Federal Reserve is spiking prices with easy money. (Sarah Palin unscrupulously blasted the Fed for pumping up Americans' grocery bills.) But the Fed control the money supply, not Siberian weather patterns or the price of wheat and soy. The upshot is that despite upbeat economic indicators, the United States is in the precarious position of being a weak economy facing rising prices for mandatory items like bread and oil. Look out for this headwind through 2011.

Oh, and read the full story in Bloomberg BusinessWeek.