These suffocating mortgage rates are an important sign of victory for a Fed whose primary inflation concerns come from housing.

An even clearer sign of victory comes from the bond market, specifically the breakeven rates on five- and 10-year Treasury Inflation-Protected Securities (TIPS). Reuters reported that these TIPS “slid to 2.636% and 2.362%, respectively, a level last seen in September 2021.” Nancy Davis, managing partner and chief investment officer at Quadratic Capital Management LLC, accordingly observed that “the breakeven market, the difference between TIPS versus regular Treasuries, is dramatically downward sloping. It’s barely above the Fed’s long-term average (inflation) target of 2%.” In other words, the bond market is already anticipating that the Fed’s aggressive push to normalize monetary policy and fight inflation will work.

A broad swath of commodities and commodity-related stocks are suffering under the weight of the Fed’s success. The charts below are just a sample: diversified commodities producer BHP Group Limited (BHP), iron ore producer Rio Tinto (RIO), copper producer Freeport McMoRan (FCX), and the metals and mining ETF (XME) (charts from TradingView.com). Even agricultural commodities like corn and lumber look like they have topped. Perhaps these declines represent the early signals of a recession. If so, those concerns may wait for a post-inflationary day.

BHP printed a double-top in 2022 BELOW the 2021 highs.

RIO topped out in 2022 well below 2021’s highs. It now trades at the November, 2021 low and is at risk of challenging the November, 2020 low.

FCX is close to erasing ALL its 2021 gains.

The SPDR S&P Metals & Mining ETF (XME) quickly reversed its entire 2022 breakout.

Spot corn prices closed below the uptrending 200-day moving average for the first time since January. The topping formation for 2022 looks like the dreaded head and shoulders top (shoulders in March and June, the head in April).

Lumber prices topped out in 2022 well below the 2021 highs.

Be careful out there!

Full disclosure: no positions

The post The Fed’s Hawkish Pressure Is Working Against Inflation appeared first on Inflation Watch.

This price drop has put additional pressures on some of Europe’s poorest regions.

For more details see “Europe’s (olive) oil crisis“

The post Olive oil prices continue to drop appeared first on Inflation Watch.

Note that Starbucks stock was actually down today while the major indices experienced strong rallies.

For more detail see “Starbucks to raise prices in certain regions”

The post Despite declining coffee prices, Starbucks ($SBUX) hiking some prices by 1% appeared first on Inflation Watch.

“Across much of the Midwest the sharp increase in farm earnings has driven the price of farmland to previously unimaginable — and, some say, unsustainable — levels. But in the process, to much less fanfare, the financial rewards have also encouraged farmers to put ever more land into production, including parcels that until recently were too small or too poor in quality to warrant a second glance…

…farmers, flush from the most profitable years in decades and looking for better places to store money than low-interest savings accounts or a turbulent stock market, are putting their money in land.”

According to an Iowa State study, farmland in Iowa increased 32% last year to $6,700 per acre.

See “As Crop Prices Soar, Iowa Farms Add Acreage” for more details.

The post Farm Acreage Continues to Increase with Crop Prices appeared first on Inflation Watch.

Here is a key quote that describes the situation:

“World food prices tracked by the United Nations retreated for a fifth consecutive month in November, the longest decline in more than two years. The U.S. government said Dec. 9 that combined global inventories of corn, soybeans and wheat will be 3.2 percent larger than anticipated a month earlier. Cocoa capped its longest slump in 50 years last week on increasing supplies from Ivory Coast, the world’s biggest producer.”

DBA, the PowerShares DB Agriculturae Fund ETF, tells the story. the ETF has now sunk to 14-month lows. Today’s price marks the previous post-recovery high in 2009.

The post Agflation finally slowing down appeared first on Inflation Watch.

Her general conclusion is that it is cheaper to do the “non-glamorous” things at home, but glamorous activities like raising chickens, goats, and turkeys cost too much in infrastructure to make it worthwhile. It is definitely cheaper to make your own bread and muffins but more expensive to make candied ginger. It is cheaper to buy lemonade than make it – not to mention all the effort it takes to squeeze the lemons. Reese also addresses convenience, food quality, and moral choices.

The book looks like a worthwhile read for those considering to beat higher food costs with homegrown and homespun creations.

The post When is it really cheaper to make your food at home? appeared first on Inflation Watch.

A truly fascinating tale of a completely avoidable bubble in the price of rice.

The post The Rice Panic of 2007 appeared first on Inflation Watch.

Under Alan Greenspan, the Federal Reserve was known to stand on the sidelines while bubbles in asset prices grew and grew. Greenspan had a lot more faith in the Federal Reserve’s ability to mop up the subsequent mess caused by a bubble’s collapse than in its ability to stop a bubble, much less identify one.

It seems times have changed. On October 13, Businessweek chronicled the Fed’s efforts to make sure that soaring prices in agricultural land do not lead to another messy bubble and economic calamity. Prices have indeed soared across the midwestern United States:

“The Kansas City Fed reported land values were 20 percent higher than a year ago. The Chicago Fed reported a 17 percent increase in its district, the fastest increase since the 1970s. Nonirrigated farmland in the Minneapolis Fed district increased 22 percent in price.”

The factors driving these increases are the same as I reported from a related Planet Money piece: “Land prices have doubled in Iowa over the past few years“: “elevated crop prices, soaring farm income, and record-low interest rates.”

As a result, nervous regulators are demanding rigorous stress tests of banks up to their gills in agricultural loans. Businessweek also reports that regulators are “…scrutinizing the lending standards, loan documentation, and risk management at the country’s 2,144 agriculture banks.”

I will be very interested in the outcome of all this scrutiny. The same Federal Reserve that helped create record low interest rates is working to ameliorate the impact of those very same interest rates. This episode is a reminder that flooding an economy with liquidity does not produce equal outcomes for all sectors. Recovery and prosperity does not even need to appear in the sectors most impacted by the malaise the Federal Reserve scrambles to repair. Instead, the money tends to collect where it will generate the highest returns due to other economic factors. Currently, it seems that the bet is on farming. I believe the Federal Reserve was aiming for housing…

The post The Federal Reserve finally tries to fight a bubble…in the price of farmland appeared first on Inflation Watch.

Finally, one “seasoned farmer” warns that this boom is indeed a bubble and points to the crash in land prices in the 1980s after a similar period of exuberance.

Listen to “The Tuesday Podcast: The Land Boom“

The post Land prices have doubled in Iowa over the past few years appeared first on Inflation Watch.

“Caterpillar is announcing price action of 0 – 3% worldwide on most machines. This price change will be effective January 2012.

In addition, emissions-related price increases of 2-6% will also apply in January for applicable products and regions.

This price change is a result of current industry factors as well as general economic conditions. Details by product will be released to dealers in the near future, and will vary across geographic regions and products.”

This is a surprising announcement given the rapid decline in commodity prices in the past several months and an earnings warning from Ingersoll-Rand (IR) announced just today. This pricing news suggests that global economic conditions are not yet recessionary.

The post Caterpillar raises prices on most machines worldwide appeared first on Inflation Watch.