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The Price of Rice is Not a Supply and Demand Issue.

In Commentary, Money Supply on April 14, 2011 by CQCA

In a speech given to the Economic Club of New York (in New York, New York) on April 11, 2011, Vice Chair Janet Yellen claimed:  “[R]ecent developments in commodity prices can be explained largely by rising global demand and disruptions to global supply rather than by Federal Reserve policy.”

As the chart above shows, the supply of rice, to use one example, remained stable between 2000 and 2010.  In fact, it increased from 229.2 million cwt in 2000 to 270.4 million cwt by 2009, or 18%.  Although there was not an absolute direct link, the increase in the money supply and the increase in the price of rice had a similar trajectory.

The price movements do not really correlate with a demand increase, either.  The U.S.’s end stock, meaning the amount of rice left over after food processing, planting, and exporting, remained above 10% throughout the period.

Of the three indicators—supply, demand, and money supply—the falling value of the currency seems to be the most direct link to the increase in the price of rice.

 

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