Ethanol may fuel inflation

Forget about oil as the inflation bogeyman we should fear the most. The surging price of corn is the latest threat to American wallets, and where it hits them might go beyond the supermarket.

The issue really starts with the government’s push to increase the use of alternative fuels like ethanol to reduce reliance on foreign oil. Because most U.S. ethanol is made from corn, that burgeoning boom is straining corn supplies, and boosting prices.

That makes everything from soda (sweetened with high-fructose corn syrup) to the steak from corn-fed beef more expensive. It’s also crimping ethanol producers’ profitability, which could lead to calls for increased federal subsidies to keep them afloat.
This is all happening just as consumers are starting to feel relief from lower energy prices, which are down nearly 30 percent from the highs reached last summer. Inflationary concerns have shifted to corn, which has doubled in price from a year ago to a 10-year high of around $4 a bushel.

Last year’s corn harvest was the third-largest in U.S. history, but as Merrill Lynch chief North American economist David Rosenberg notes, that large supply is being met by even bigger demand from the fast-growing ethanol market.

Beacon Journal