A Risk Of Inflation

I admit that I am not smart enough to know how the inflation/deflation debate will ultimately play out. We are in unprecedented times and anybody that claims to know for certain is a fool or a liar. A large part of the reason that inflation has been kept under wraps for the past decade is global labor arbitrage.

Food prices are starting to become an issue in the countries where there is cheap labor. If food prices continue to rise, cheap labor will cease to be as cheap. If the price of grain goes up so do cattle prices. From the Associated Press via Yahoo!:

China's food price inflation spiked to 6.8 percent in July over a year earlier, pushing overall inflation to 3.3 percent, its highest level this year, according to government figures.
Elsewhere, a jump in food prices triggered deadly riots in Mozambique this week and the poor in Asia, the Middle East and Africa are under strain after global prices jumped 6 percent in the past two months alone.
No unrest has been reported in China but food prices are politically sensitive in an economy where the poor majority spend up to half their incomes to eat.


PJ said...

Chinese/Indian inflations are due to the stimulus programs. Inflation lags credit expansion about a year and they started winding down the credit early this year, so we have a few more months before their inflation begins to moderate.

But the global economy is entering the second leg of the depression, it will be clearly sinking in all countries by January, so any inflation bets are likely to be hit hard at that time.

CP said...

Exactly, now would be a good time to buy TLT calls.

Tsachy Mishal said...

I was not taking a side on the inflation/deflation debate as I see both sides. I was trying to say that in isolation this is an inflation risk.

Tsachy Mishal said...

Although I see the downside in treasuries as a lot bigger if the inflationists are right than the upside if deflationists are right.