What is in this article?:
- The good news for U.S. farmers is that the dollar will continue to depreciate against most currencies over the next few years.
- The combination of bad weather and bad policies has been the major driving force behind the recent rapid rise in food prices.
- The big game-changer here is not ethanol but unconventional sources of natural gas — shale gas, tight sands and so on. I think this is what is going to change things for the U.S., not ethanol policies frankly.
EDITOR’S NOTE — The following remarks were presented at the recent USDA Outlook Conference by Nariman Behravesh, chief economist, HIS Global Insight.
Thank you for inviting me, it’s a great pleasure to be here. I’m going to focus on the big picture today.
The good news right now in terms of the global economy is that things are in pretty good shape. President Clinton referred to the global financial crisis, but for most economies, at least at the macro level, this crisis is over, and especially in the U.S. we’re doing fairly well.
We think, for example, this quarter the U.S. economy will probably grow around 4 percent, which is pretty decent.
Let me just give you the highlights, and then in the 15 or so minutes I’ve got I’ll dig a little bit deeper into some of these issues. First, we are in a multi-speed world. Europe and Japan are in the slow lane. The U.S. is in the middle lane. And the emerging markets are in the fast lane. Just to put things in perspective, we’re probably going to grow about twice as fast as Europe or Japan in the next few years. And the emerging markets will grow twice as fast as we are, so about four times as fast as Europe and Japan.
U.S. growing 3 or 3.5 percent, Europe 1.5 or 2 percent, emerging markets on average about 6 percent a year. This pattern is likely to persist for some time to come. In this environment, commodity prices are going to go up. The only debate is how much. Some of this is very commodity-specific in terms of specific supply and demand conditions, specific policies, and so on.
But that said, the good news for the industrialized economies, including the U.S., is that inflation is not a problem. Now how can you reconcile those two — rising commodity prices and no inflation? First of all, commodities play a fairly small role in the U.S. They play a huge role (that includes food and fuel) in countries like India and China, (maybe half of consumption) and in some countries even more.
In the U.S. we’re only talking about 15 percent of consumption. So rising commodity prices, yes, a problem — I don’t mean to minimize it — but not a huge problem. In fact inflation in the U.S. is going to remain below 2 percent over the next couple of years. So inflation is not a problem in the U.S. This is also true in Europe, and Japan has deflation. In the emerging markets, because food and fuel are a bigger part of the consumer basket, inflation is already a problem and could become worse.
So you have this two-speed/three-speed world in terms of growth. You’ve got the same pattern in terms of inflation.