Tuesday, January 26, 2010

Spending Bulls?

Economists at Societe Generale have a reminder for spending bulls today:

At the end of 2009, food prices in developing economies were rising about 10% faster than nonfood prices. This reflects the fact food price increases at the production level tend to be rapidly passed through to final food prices.

The current upswing in food commodity prices has only ever been rivalled on two occasions in the last century. One was the price boom of the 1930s – which reflected the recovery from sharp declines in the Great Depression – and the other was the commodity price rise of the 1970s – driven by strong world demand and supply shortages of food items.

Click on chart to enlarge, courtesy of Societe Generale.

Emerging Asia is going to pull the global spending? Just think of these sentences written by economists:

Asia has a particularly high disposition to inflation. Food and energy have particularly high weightings in the CPI basket and it is here where inflation is displaying its budding strength.

• In terms of Oil, Asia in general uses twice as much energy per unit of GDP as developed economies. Japan is the exception, using only half the oil per unit of GDP the US does and one quarter the oil Asia on average uses to produce a unit of GDP.

• In terms of food, the actual cost of food accounts for a bigger fraction of the retail costs of food items in emerging economies. In the developed world, the bulk of the retail cost of food items reflects retail, advertising and other service costs.

Click on charts to enlarge, courtesy of Societe Generale.

There are so many disseminating the view that asset reflation is going to help. Let's hope that monetary policy tightening in Asia is not derailing the hope of global recovery?

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