Attention shoppers: Don't expect food price inflation to abate any time soon.
After a massive run up in Wheat prices following Russia's invasion of Ukraine, India halted wheat exports this weekend to address domestic supply concerns.
While India is the world's second largest producer of wheat, they keep the majority of their production onshore given local demand. That being said, with the first and fifth largest exporters of wheat now engaged in war, the loss of Indian wheat hampers future global trade, and may be another domino to fall in terms of sovereign nations protecting their food supply (Hungary banned grain exports in March 2022).
Hedgeye CEO Keith McCullough highlighted how this matters for investors in terms of the math on The Macro Show (rather than just opining on narratives):
"That's absolutely going to impact our inflation Nowcast; don't forget food inflation is still most likely to be the last thing to start to disinflate, so no change there. In fact, you're going to have higher inflation numbers from the base than we would've expected, in aggregate."
In April's CPI print of +8.3% year-over-year, the 'food-at-home' index rose +10.8 percent, the highest print since 1980. Meats, poultry, fish, and eggs came in even hotter at +14.3 percent, the largest increase since 1979.
Looking forward, wheat prices lead food-at-home by 8 months, meaning all-time highs will be filtering into headline CPI which is already at elevated levels.
With food-at-home representing the majority of food's 14.5% weighting in the headline CPI basket, higher wheat prices will be a contributing factor in maintaining sticky-high price levels and inflation prints.
We maintain our call for disinflation (rate of change is what matters in macro), but that doesn't mean inflation won't remain at a stubbornly high level. The best way to protect your hard-earned capital is to stick with the Hedgeye #process.