Agflation

Agflation is the inflation by agricultural commodity prices, i.e. by food.

For some time now, we have been experiencing a rise in food prices and food shortages. The food prices are currently at an all time height and production is slowest since the Green Revolution. Still, farmers produce more than twice the minimum needs for most people on the world.

Why does the price of food rise?

Normally, the main reasons for a rise in food prices are that not all food is in right place available for everyone, that many people can’t afford food, that a significant part of produced food is used for biofuels and government mandates.

The food prices are usually set by the amount of food relative to the population and the change in supply and demand over time.

What is said to have caused the current agflation are supply shocks. These include natural disasters like drought and large scale fires like in Russia, China and Australia and floods like in Canada and Pakistan. Food supplies have been affected severely by these disasters, nevertheless they are not the only supply shocks. Factors outside agriculture like a fall in the dollar have made it cheaper to buy from other countries. Panic buying and trade bans have also contributed to the supply shocks in the food market that is causing agflation over the world.


This increase in food prices supposes greater problems for those people living in the developing world who might face starvation due to food shortages and high food prices. 

Unrest in Egipt, unrest in the oil price

In the last weeks we have seen many disruptions and anti-government protests in Egypt. This has had many consequences on the world's economy. However, I feel it is important to point out that it would be frivolous  to go about this topic looking only at the economic impact.

The events occurring in Egypt at the moment are of a huge political and social impact. It is, in my opinion, highly remarkable how the use of the internet and social networks has aided in these disruptions in the government policies and has gathered people to fight for their freadom.

Going back to the economic part of this conflict, we can see its effect  mainly on the oil prices. The oil price has risen twice above $100, hitting a two-year high. The slowing down of the transport on the Suez Canal and the risk of this even closing are of an immense importance to the economy and our everyday lives. Every day, about 2.5 million barrels of oil pass through the Canal, and the fear about this has caused a downturn in the oil market.

On a more local aspect, the Egyptian stock market went down 10 % - the largest one-day drop in some years. Some rating agencies have also downgraded Egypt, showing again the fear that is raised by these disruptions in the economy.