First It Was Eggs…

Get ready to eat more eggs… because the price of everything else is going up.

Whatever the problem was that caused egg prices to double last year has been solved. A carton of a dozen of the yolk-filled gems is back down to where it was last summer – before the large spike higher.

But, eggs are just about the only staple of the American diet that has fallen in price.

Everything else is rocketing higher.

Wheat, for example, is 20% higher today than where it was at the start of June. Corn is 23% higher. Soybeans have joined the inflation-party, too – spiking 17% over the past three weeks. And, all varieties of livestock are up 10% or more since the end of May.

You can see the effect of this condition on the following chart of the Invesco DB Agriculture Fund (DBA)…

DBA is trading at its highest price of the year. It’s up 14% since the low in January. And, much of that gain occurred over the past three weeks.

This is concerning for a couple of reasons…

First off, and most obvious, the rising cost of food is going to chip away at our household budgets. Consumers have to spend more to eat – which is a necessity. So, they’ll have less to spend on other discretionary purchases.

The less obvious concern, though, is how rising food costs affect the rate of inflation.

In its most recent decision on interest rates, the FOMC “paused” its rate hiking cycle. The rapid increase in rates over the past year seemed to be producing the desired result of taming inflation.

So, the Fed passed on a hike in June, while leaving open the possibility of future hikes if inflation starts to heat up again.

The stock market rallied on that news. In fact, much of the stock market’s gains over the past six weeks are based on the possibility that the Fed is nearing the end, or may be at the end, of its rate-hiking cycle.

If the recent sharp increase in agriculture prices sticks, then the inflation numbers over the next few months are going to be higher. The Fed is going to feel pressure to raise rates even more.

And, to the extent that the gains in the stock market are due to expectations of the Fed pausing, stocks are going to come under selling pressure.

If that happens, then the falling price of eggs will offer little consolation.

Best regards and good trading,

Jeff Clark

Have you noticed the uptick in price in staple foods?

Let us know your thoughts – and any questions you have – at [email protected].