News that the US suffered one of its most devastating droughts in history last month is likely to affect the worldwide supply of corn. The drought has destroyed vast acres of crops in the Mid West and the October harvest is likely to yield significantly less volumes than expected. The US is a major global producer of corn and the shortfall will impact the rest of the world as prices are set to increase. Corn has already soared in price by as much as 140%.
The prospect of rising food prices in the UK will add further inflationary pressure on households who have already seen their disposable income squeezed as a result of the current recession. The cost of living continues to increase with higher fuel and electricity prices whilst incomes are stagnating at best.
The inflationary pressure from rising prices increases the likelihood of further quantitative easing (or money printing) by the Bank of England and this will have an adverse affect on savers and pensioners.
Economists believe that the prospect of further quantitative easing is highly likely. In the US there are worries about rising food prices together with the prospect of the “fiscal cliff” as the US economy is highly leveraged after taking on too much debt. It is likely that the Federal Reserve will need to print more money.
In Europe there are worries over the future of the Euro despite Mario Draghi’s promise that the European Central Bank will “do whatever it takes to save the Euro”. The ECB’s solution to saving the Euro is likely to involve buying sovereign bonds in troubled countries within the Eurozone. Again, this is likely to require quantitative easing.
Businesses in the UK will be advised to review their supply contracts and lock in their prices where possible.