Are food and gas prices linked?

Date posted: March 11, 2011

The latest inflation report was recently released, and it showed two glaring concerns. Two of the items rising the fastest in price are food and energy. N.C. State University economist Mike Walden says there’s a common factor pushing both higher.

“It is not the common factor that most people think. Most people realize it takes energy to grow food, so they figure if energy prices are going up like gasoline prices — gas going into the farmer’s tractor — that’s going to cause food prices to go up. And although there is a connection there, that’s really not the connection that is driving them higher.

“What’s going on right now is the fact that in a large part of the world, roughly a third of the world is really moving from being at subsistence level to being very developed economically. We’re talking about countries like India, China, Southeast Asia, Indonesia, parts of South America. And what happens when a country develops economically and raises its standard of living, the types of things that those folks in those countries buy changes. For example, they use a lot more energy. They buy cars. They buy modern appliances. They put in air conditioning. All of that uses more energy.

“And … they eat differently. They sort of move up the ladder in terms of their food consumption. They eat more meat, and meat takes more energy in terms of using grains and so forth.

“So really the common factor behind the increase in food and energy prices is the fact that a large part of the world is now moving up the economic ladder.”

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