What Google says about inflation | FT Alphaville

What Google says about inflation

Alternative research shop Variant Perception is always good for an exciting nugget of eco-data.

In their latest monthly report their focus — as always — tips towards the inflationary view of things. One indicator they cite to lend support to that view being statistics stemming from Google Trends.

Now, if you think Google Trends is far too whimsical a data set, VP reminds that the US Centers for Disease Control and Prevention (CDC) already use Google to accurately estimate influenza-like illness percentages in each of the nine public health regions of the United States in real-time.

So what does Google tell VP?

According to the analysts, they’ve noticed a strong up-tick in searches for food inflation after a year of relative calm. Note the following chart:

Further still, and perhaps unsurprisingly say Variant, most searches are coming from emerging markets where food is a big component in consumer price indices. Overall, Pakistan, South Africa, Singapore and India have the highest searches globally.

This is interesting in light of the fact that there was a very steep sell-off in both corn and wheat prices last week despite continued bad weather reports:

Yet as VP note:

The price spike of 2007-08 was not a one-off event. Despite the fall in food prices, there has been no improvement in agricultural fundamentals – yields are not rising, capacity utilization in farming is already extremely high, and emerging market demand for food is growing – so there will be another spike.

The parabolic increase in wheat, corn and soybeans was the result of structural imbalances in the world food chain, not purely bad weather. The structural problems are still there. Oil is no longer at $147, so biofuels rarely make the press, but they are still competing with food crops for available land. In fact, the demand on crops from biofuels may well increase in the next nine months, depending on the verdict of the Environmental Protection Agency, which must decide what the ethanol contribution to gasoline will be.

In which case investors might be wise to consider wheat and corn markets as being cheap for where they are in the cycle.

In any event, it’s certainly food for thought.

Related links:
India wheat futures edge lower on output hopes
– Reuters
Farm fund reaches £7.5bn
– FT
Inflation expectations, Google datapoint du jour – FT Alphaville