• Food price inflation has been massive
  • Are war and climate change to blame?
  • Or is it down to something else?

While the rate of inflation may have subsided somewhat over the past year, it remains positive. Prices are still rising, if more slowly than before.

The cumulative rise in prices over the past few years is thus still growing. Amidst stagnant wages, this implies a continuing decline in the typical household’s standard of living.

For many, nowhere is this more evident than in the cost of food. A recent article in the Telegraph looks at a range of food products and their large price increases in recent years.

These include signature national dish fish and chips, which has risen by 52% over the past five years. A kebab is up 44%. Chicken and chips 42%.

The largest price increases have been in olive oil, sugar, beef, baked beans and bottled water. But prices of almost all foodstuffs have risen materially over the period.

(For those reaching for a G+T to help drown out the sorrows of rising prices, at least the price of lemons has been unchanged, so go on and add a slice.)

The article also offers some explanations for the soaring cost of food. Indeed, the title of the article reads “climate change and war in Ukraine pushes up price of fish and chips”.

Really?

Well, according to the article, “the rise in prices spiked in 2022 after the cost of living crisis caused energy costs to rocket”.

Huh?

How, exactly, does a cost of living crisis – presumably rising prices – “cause” energy prices to soar? Price increases cause price increases? Isn’t that tautological?

There is frequently such confusion when it comes to inflation. First, the government doesn’t like to even talk about it, because it is so politically unpopular.

Second, when they do talk about it, they go out of their way to deflect any possible blame that their policies might have had something to do with it.

So, they go about conjuring up inflation ‘bogeymen’ that suddenly decide to emerge from the bedroom closet or out from under your bed.

These can be quite creative sometimes. As I recall, earlier this year, Taylor Swift was blamed for inflation due to high prices for concert tickets and hotel stays.

Indeed, there are so many bogeymen piling into the closet at present that Ms Swift probably finds it rather uncomfortable in there.

There’s war, climate change, sanctions, tariffs, shortages, corporate greed, union strikes… In brief, everything (and everyone, not just Ms Swift) but His Majesty’s Government.

Chronic government deficit spending is not to blame. Past bank bailouts and associated money printing and zero interest rates are not to blame. Regulations, taxes and other rising costs of doing business are not to blame.

No, it’s all down to Taylor and her closet bogeyman buddies.

Let’s move on from such nonsense and think logically for a moment.

As Milton Friedman famously said, “inflation is, always and everywhere, a monetary phenomenon”.

What he meant was that, while prices may rise and fall for a great number of reasons, the only possible explanation for a general, sustained rise in the price level is a general rise in the amount of money circulating in the economy.

All the other possible factors, such as shortages say, can’t explain it. If there’s a shortage of lemons, then OK, the price of lemons is going to rise. But if the supply of money is stable, then as the price of lemons rises the price of one or more other goods must decline. There cannot be a general rise in the price level because of a shortage of lemons alone.

Now extrapolate from lemons to food. If there is a general rise in the price of food, as described above, yet the money supply is stable, then the prices of other goods must decline.

Has that happened? No.

As with Ms Swift, the inflation bogeymen do exist in a certain sense. They are conjured up and sent into our closest or under our beds or into our refrigerators by the government and central bank.

This might remind some readers of the film Monsters, Inc. But in this case, the threat is very real.

Prices do indeed rise. We should be under no illusions about that.

But rather than cower under the bedsheets, we can and should take actions to protect our wealth from the bogeymen and their government handlers. If you’d like to learn about some of the simplest steps you can take, you can do so here.

Until next time,

John Butler
Investment Director, Fortune & Freedom