Emerging Markets / May 14, 2018

Agribusiness and Global Inflation Measures

The Consumer Price Index (CPI) is an economic indicator of national or even regional inflation, which is usually measured in urban areas by calculating the periodic price variation on a predetermined basket of everyday goods. The traditional CPI basket features items such as milk, bread, soap, clothing, and gasoline. Furthermore, the CPI can be broken up into categories, such as food & beverages, housing, apparel, and transportation, amongst others. Measured several times throughout the year, just like unemployment statistics, the CPI gives an insight into inflation and cost of living in particular cities as well as countries as a whole.

Agribusiness and Global Inflation Measures

Generally, in western countries, the food & beverages category of the CPI represents approximately 15% of the total goods and the transportation category represents a similar percentage. Together, these two categories account for 25-30% within the CPI sample basket. In the case of the United States, when compared side by side over the last several years, the food & beverages CPI category has consistently presented higher inflationary growth than the overall CPI. This contrast indicates, amongst other things, a higher demand for food and beverage consumer goods that is not being efficiently met by the available supply. Meanwhile, in recent years, the transportation or energy CPI category has grown at a lower than average pace given the prevailing low prices in fossil fuel markets.

When measuring the food & beverages as well as the transportation CPI category, they consistently represent higher inflation and volatility than the overall CPI. Thus, there is a distinction between overall CPI and Core CPI, which excludes both food and fuels. Even though the case presented above is that of the United States, this phenomenon is also current in the European Union. Clearly, the food & beverages category, as well as the energy sector, represent the most volatile elements of the CPI. Therefore, they are today’s leading drivers of inflation in Western economies. Investments in the food and agriculture industry will provide a greater goods supply in order to meet the growing demand of world markets. Such investments include farm automation, precision farming solutions, crop protection systems, and other emerging technologies as well as farmland and crop expansions. Likewise, increased trade and overall agricultural production will lead to lower prices and help control inflation. Furthermore, the food and agriculture industry also provides alternative biofuel and energy sources; thus, presenting a unique opportunity to combat inflation and spur economic prosperity.

In the specific case of the Eurozone, which are the nineteen EU members that use the Euro as their official currency, the overall inflation during April 2018 was 1.2%. However, in the data breakdown, the highest levels of inflation were registered on the food, alcohol, and tobacco category as well as the energy category, which were 2.5% percent respectively. Simultaneously, the category of non-energy industrial goods registered an inflation of 0.3% during April 2018, while services accounted for 1.0% inflation.

(Read more about Politics and International Commodity Prices)

Latest Media