JPMorgan: Rising Food Prices Fuelling Inflation

"If you break down the inflation numbers then the impact of food has been extremely significant," Will Shropshire, head of investor trading, product development and agriculturals for JP Morgan said in an interview with Reuters.

Shropshire said prices for agricultural commodities had risen to a level that "reflects the tightness of the balance sheets (of the commodities)." He added prices could rise further if markets are hit by any more supply concerns.

"If we have any more shocks to supply the impact could get increasingly dramatic," he said.

Shropshire is correct about the supply problem, but he neglects to point out the demand side contribution via the Federal Reserve printing money. What we have here is a perfect storm situation for much higher prices. It can't be hidden anymore by Nixonian indexes. The sophisticated traders who watch markets daily may not understand the theory, but they see the market activity in front of them.

This knowledge will trickle down to less tuned-in traders and the demand intensity from the traders side will increase exponentially.  It will create even less demand to hold cash. Expect significant inflation to start kicking in no later than mid-2011.