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Food Inflation Becomes Problem in China

http://www.nytimes.com/2007/06/08/business/worldbusiness/08prices.html

The link above is to a story in Friday’s NY Times detailing how pork prices have skyrocketed in China in recent days (you may need to sign-in to read the story).

Just as we’ve been discussing food price inflation in the US as a potential issue of concern, the same thing is happening in China. Probably most concerning is that Chinese companies are starting to raise prices on their exports so they can defray rising costs at home. This does not bode well for inflation in the states since so much of our spending these days comes from Chinese imported goods.

The stock market has not yet absorbed the potential impact of rising inflation. Last week’s 400 point selloff in the Dow as bond rates began their rise from inverted yield curve levels to the 30-year bond now being flat with overnight rates was likely only the beginning of difficult times ahead for stock market investors that do not have a healthy allocation to energy, metals, and ag in their portfolios. These were the winners in the 70’s inflation tainted market and they will be the winners in this newest inflation scenario.

Tonight at 10pm EDT China will announce its May inflation data, and Friday the US CPI will be announced. These are the numbers that will point the direction for the world’s bond and stock markets for some time to come. Be prepared for the analysts on TV to be surprised and shocked.

Mark