Here comes screwflation

The continuous commodity index (CCI), an index of prices of 23 different commodities – the things we use in our everyday lives – is beginning to rise at an alarming rate in Rand terms.

The CCI is up nearly 20% in Rand terms in 2010, and commodity prices are on the front foot at the start of the year.  We have long maintained commodity prices will be pushed ever higher as long as central bankers continue with their lunatic QE policies.  The developing shortages and droughts in Russia and Argentina are just making matters worse.  This is important: commodities and agricultural commodities are already in a bull market as there are supply shortages that have been developing for well over a decade and demand from Asia is rising. The money printing will just reinforce the bull market and send prices even higher when there are supply disruptions in key production zones around the globe.  It is not only the weather and droughts driving agricultural prices higher, for all commodity prices are rising, many of which are not related to the weather.  It is a monetary issue.

Point of the post is to say that you will be paying substantially more at both the pump and in grocery stores for food and fuel this year.  If you previously considered and sympathised with the argument for weakening the Rand, you will this year know why we argued against it.

With money supply still very anaemic, people will need to substitute spending on other goods and services if they are to continue eating the same quality and quantity of food, and if they are to continue driving as much as they did before.  Your shopping bag is going to get smaller and smaller for that R100 note in your hand.

The term “screwflation” is already being used by some in the US to describe something similar.  The lower and middle income classes are going to get – that’s right – “screwed”.

We can be lucky there has been some strength in the Rand this year, the CCI is up 32% in US dollar terms in 2010.  Mark our words, or bookmark this post, CPI inflation WILL hit America in the second half of this year, and it will surprise in its strength.  We are of the view that US CPI inflation will be higher than SA CPI inflation before the end of 2011.

Weakening the Rand for political and exporter ends should be fiercely opposed if you want to protect you and your family’s standard of living and finances.  As we said back in October 2010:

“A weaker currency cannot make productive processes any more efficient and will never, EVER, lead to prosperity for the masses.  So when anyone in your near vicinity calls for a weaker Rand to drive employment and job growth, refute it profusely; scream like you are being robbed.   Debauching the Rand will steal you and your family’s hard earned wealth.”

You're going to be paying more at the pump and more at the grocer this year

CCI is comprised of:

• CRB BLS Metals: Copper scrap*, lead scrap, steel scrap, tin, and zinc*.
• CRB BLS Textiles and Fibers: Burlap, cotton, print cloth, and wool tops.
• CRB BLS Livestock and Products: Hides, hogs, lard, steers, and tallow.
• CRB BLS Fats and Oils: Butter, soybean oil, lard, and tallow.
• Raw Industrials: Hides, tallow, copper scrap, lead scrap, steel scrap, zinc, tin, burlap, cotton, print cloth, wool tops, rosin, and rubber (59.1%).
• CRB BLS Foodstuffs: Hogs, steers, lard, butter, soybean oil, cocoa, corn, Kansas City wheat, Minneapolis wheat, and sugar (40.9%).

http://www.crbtrader.com/crbindex/