Farmageddon Strikes…and It’s Coming for Your Wallet

Some people are calling it farmageddon. I’m gonna go with coffeeasco. (That’s coffee + fiasco).  

I’m traveling this week and before I took off for the airport in Prague, I stopped by my local coffee bar for my regular iced latte to go. The bill: 70 crowns, right about $3. 

I did a double take when the barista told me.  

The day before it had been 65 crowns—a price I’ve written about in recent months because for as long as I’ve lived in the Czech Republic (more than three years now) the price was always 60 crowns. 

So it is, then, that in the span of a few months, my iced latte is up 17%.  

Ah the joys of real inflation.  

Everywhere I spend these days, my costs are escalating. Frankly, it’s frustrating.  

Still, I know I don’t have it nearly as bad as friends and family back home. I don’t have a car here, for instance, so no fuel and insurance costs, both of which are pricier these days. And though my food costs are up, food prices at the supermarkets and typical Czech restaurants my wife and I frequent are much cheaper than America to begin with. 

And yet lately, my wallet flinches every time I open it. 

My daily iced latte is a really good example of just how invasive inflation is this time, and how it’s here to stay. 

Not hard to deconstruct a latte and figure out why prices are up. It’s just a bunch of milk and a shot of espresso. 

A did a quick bit of Googling and coffee prices on the commodity market are about $2.25 per pound, up 44% in a year. Milk is up too. In Ireland, a recent headline noted that Kerry Dairy is milking its consumers for nearly 19% more on dairy products. 

I don’t see an end to this anytime soon. 

One of the oddities of the pandemic was that even though consumers lost jobs and income, their cost structure declined because they weren’t spending as much as they otherwise would have.  

Plus, the government was dropping large amounts of dollars into their bank account to help keep economies from seizing up. The result is that Americans built up an excess amount of reserves that they are now burning off in what is essentially revenge spending. 

The Fed really can’t control that very well because so long as consumers have what they see as free money, they’re going to consume. Raising interest rates really won’t touch that—though it will certainly redirect some of those reserves into higher debt repayments since credit card rates are going up. 

But even that is a temporary matter. I’ve already written about this so I won’t dive into it any deeper than to say the Fed’s rate hikes are constrained by American debt at the consumer, corporate, and governmental level. 

And beyond that, there’s the fact that the rest of the world has a bunch of free money too, since central banks globally were far more generous with their handouts than was Uncle Sam.  

So, the Fed is fighting against global consumerism, over which it has little say. Consumers all over the world are competing for the same supply of goods, and they are bidding up prices in that quest. 

I am part of the problem, of course. If I didn’t buy an iced latte every day from that café, my demand would be absent. And if every other coffee buyer refrained from their cup ‘o Joe, then that café wouldn’t be ordering so many bags of coffee beans…and if more and more Czech cafés reduced their orders for bags of coffee, then demand would fall.  

You can follow the chain and see that shrinking demand would pull down prices and inflation would taper. 

But that’s not how humans work. We want what we want. And if we can afford it, we buy it, particularly when the cost is as seemingly inconsequential as an iced latte. 

However, that just means demand will remain elevated, which means inflation remains elevated for probably a few more years. 

And it means, ultimately, that today’s elevated prices are pretty much the new normal. They’ve permanently reset higher. 

Question is: Will incomes reset higher too?  

That’s to be determined. 

I can tell you this, though: I don’t see a soft landing in any of this. I see a crisis brewing. But that comes later. 

For now, I’m looking to buy more gold when I am in Morocco soon. Archaic and ancient as gold is in monetary terms, it’s going to once again serve as salvation when the world’s heavily indebted fiat currency system collapses.