Central Banks loss of control: Coffee prices spike. Indicative to looming hyper-inflation on foods?

 

(Image:  Coffee futures, price highest since 2018)

While technocrats and academics ponder their fumbled ability to create an overanpundance of capital, by printing money into markets.  Their manipulation of the yield curve or bond interest rates may becoming, literally, a heated issue across the board, since they, as Central Bankers are almost the single reason why there is widespread speculation and distortion in all of capital markets in their response to a pandemic.   To which, thus far, they have failed miserably overall in dealing with the pandemic and its effect of the economy – except encouraging rampant greed and risk.  With governments of the world in their coping with COVID-19 have also made error after error, in the reopening and closing and then reopening economies whilst playing down and playing up the ferocity of the virus, all the while falling back on the only option that does work which are lockdowns.  It has been their lack of coordination and accountability, failing to ensure that the vaccination programs are well administrated, that not just for a feverish opening up of their economies, but to assure that the populous is safely inoculated against a virus, which were are still learning abouts its mutations. Their efforts have been an inexcusable mess.  

Yet, the Central Banks response is the most interesting, apart from encouraging the millions of phone app uses to speculatively bet, not trade, on “penny dreadful” stocks in a strange libertarian-esque activism, of course tingled with greed, it is inflation that is now becoming an issue.  For the most part caused by excessive money supply that is beginning to rise substantially.  Which in some deluded technocrat perspective, has been denied by Central Banks as an issue, rather in an inflexible arrogance sticking to their mandates, in what they believe is to offset rising unemployment, is, as discussed in this series allowing a surging stock market.  However the rising costs of hiring may outstrip companies, even if they borrow more money to expand and hire staff.  But regardless of the reality of doing business, Central Banks have kept in line with their massive Trillion dollar asset purchase programs to assist commercial banks lending into the broader market, while at the same time supporting Junk Bonds of companies which in all reality should have gone bust.  Central Banks more so the Bank of Japan and Federal Reserve  have bought into exchange markets – which Central Bank bank rules have actually gone beyond their mandate in maintaining market stability.  And it is inflation that has already reared its head,which  could also already beginning to show the hall marks of hyper-inflation.  The US 10yr Treasury is now spiking at over 1.70% which is one of the clear indicators that the bond markets are showing that inflation on consumer goods is rising substantially, where lenders, such as banks now flush with capital are finding it more expensive to issue loans as the borrower ends up paying back less to the bank to the amount loaned out, this is partially because Central banks had already created negative interest rates in 2020 in real terms when the pandemic started, by manipulating the yield curve.   Therefor, a bank in hunting profits will look at other ways to create income, which would be the speculation of stock market trades.  This reversal of moving money out of safe havens, such as bonds that offer no return on capital, is the reason, at this point in time, why yields of bonds are rising.   

So, with inflation also being a hidden tax on goods, these price increases are needed to offset overheads, inventory and wage costs that are becoming more expensive to produce.  One of the first signs that inflation is already starting to become an issue is the cost of coffee and there is a simple way of looking at this, if one is to notice that the small sizes of take away coffee cups are less to be seen, replaced by medium and larger cups, averaging  between $4.50 (Medium) to $6+ for a large.   In its simplicity of an example what it shows is that the volume of coffee is more expensive to produce and to be stored by the coffee shop, thus selling smaller portions, in an inflation environment, is not profitable.   This is because the volume of coffee as a commodity is not keeping up with rising budgets, such as rent, wages, utilities and insurance.  On top of all this, since 2020 there is a 10 billion dollar bill for coffee distributors and mid-size and larger produces in America to pay, which is on the back of transportation backlogs, production, storage and shipping costs as they all begin to rise from countries and distributors who export the coffee beans, while these producers try and return to profitable margins, which in turn battling a challenging exchange rate market by a falling US dollar and, as mentioned, increased production costs.  But, the other scourge that lurks, not just for coffee production, but for all food products is climate change.

Europe, according to a recent University of Cambridge study, is at the cusp of its worst drought in the last 2000 years, which would also mean globally in both the Northern and Southern hemispheres will be hotter summers and wetter winters, this will further contribute to an extreme impact on food prices.