Diamond prices up 17% in the first quarter

In “Diamond Prices Set To Sparkle“, CNBC reports that diamond prices increased 17% in the first quarter of this year. While the U.S. remains the biggest market for diamonds at 40% of sales, Indian and Chinese demand is rapidly rising. DeBeers thinks it may have to double output in 15 years at China’s current rate of growth. This will mark quite a turnaround for the diamond company as it turned in a loss in 2009 and required a $1B “injection” of capital to stay afloat.

Agflation set to continue into 2011

In “Food Inflation Rising as Cooking Oil Poised to Catch Grain Gains“, Bloomberg describes a world where “agflation”, my term for soaring prices in agriculture, is set to continue soaring into 2011. The extensive article focuses on the factors supporting higher prices for cooking oil, but it also presents a perfect storm for ever higher prices across the agricultural complex:

  • Increasing wealth and soaring consumption in Brazil, China, and India
  • Water scarcity
  • Drier weather
  • Increasing production of biofuels
  • Investor demand in the face of low interest rates in developed economies like the U.S.

The “good news” is that agricultural prices have not quite reached the highs in 2008 that sparked riots in several countries:

“While the UN’s Food Price Index rose 23 percent in the 12 months ending in September, it’s still about 12 percent below the 2008 peak. Food security is of less concern now than in the last several years because grains stocks are bigger and a weakened global economy will stunt demand, Abdolreza Abbassian, a senior economist at the UN FAO, said last month.”

India continues to fight inflation

The Reserve Bank of India (RBI) hiked interest rates more than expected by 25 basis points to 6%.

The RBI has a laser focus on keeping inflation expectations contained. Although inflation seems to have peaked, the RBI remains worried that it needs to “…end the prevalence of negative real interest rates.”

From today’s statement:

“Inflation remains the dominant concern in macroeconomic management…inflation rates have reached a plateau, but are likely to remain at unacceptably high levels for some months. While prices of food articles, which according to the new series, rose by over 14 per cent in August, are still contributing to the pressure, about two-thirds of the August inflation can be attributed to items other than food articles and products. Notwithstanding slight moderation in August 2010, the headline inflation remains significantly above the trend of 5.0–5.5 per cent in the 2000s. There is, therefore, need for continued policy response to contain inflation and anchor inflationary expectation.”