This year Britain has seen the wettest summer since records began, and the constant rain hasn’t just been a cause for irritation. Whilst the ducks have been having a rollicking time the unseasonal weather has had interesting effects on British inflation.
It has too often been seen how extreme natural disasters leave devastation and strained local economies in their wake, with the affected nation struggling to meet the furious levels of spending required to rebuild and fund relief programs.
Less dramatically, and of less import, is the fact that if the weather significantly fluctuates in terms of heat/cold, rainfall/drought the effect on crop growth and rotation can be severe. A major part of a nation’s economy is their food reserves and alterations to those reserves can change the balance of trade.
Great Britain certainly isn’t the only country to have been affected by abnormal weather conditions this year. Russia has been subjected to both flash flooding and drought, whilst the US has had to cope with an eastern seaboard heat wave, wildfires in Colorado and the destructive power of severe windstorms.
A repercussion of this adverse weather on the investment markets is the diminishing supply of soft commodities such as wheat, corn, etc. Prices for the more limited supplies have soared throughout 2012 as a result. In Britain the ever present rain has seen home-grown produce suffering and shoppers bearing the brunt of higher prices and empty shelves.
Although food price and inflation number are directly relational, in Great Britain it has been predicted that overall inflation probably won’t be raised by the increasing price of soft commodities. It should be remembered though that central bankers often prefer to ignore capricious commodities, like food, and base their expectations on core measures of inflation instead.
A report was in fact released today which asserted that the rain had actually aided June’s 31-month-low inflation drop. The record rainfall encouraged retailers to bring forward their summer sales, which led to a sharp increase in spending. This, combined with other factors, took the consumer price index measure of inflation to its lowest level since November 2009 – 2.4 %
However, the increased levels of spending will probably only last as long as the sales do. It is likely that commodity prices will experience a rise and that falls in inflation will slow.
It seems that recession can withstand any weather.
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