Two Potentially Profitable Sectors

If inflation is temporarily under control at home, consider what’s happening in the world’s fastest-growing large economy.

China’s inflation rated recently surged to almost a 12-year high in the month of February, with an 8.7% increase in the consumer price index over February 2007.

According to the data from the Chinese National Bureau of Statistics, the growing cost of food was the major culprit. On the whole, food costs rose some 23% in the monthly period. The average price of vegetables grew 46% over the comparable month, while the price of pork grew over 63%.

The inflation story in China reminds me of a company that’s growing like mad selling pork in that country. With over 2,800 outlets, Zhongpin, Inc. (NASDAQ/HOGS) sells chilled and frozen pork products, pork by-products, sausages, hams, and fruits and vegetable to international fast food companies, processing factories, school cafeterias, army posts, and government departments.

The good news in the inflation story for a company like Zhongpin is that it will be able to get away with charging higher prices for its food items. People just aren’t going to choose not to eat. Pork is a staple in China and that isn’t going to change.

In February, the cost of basic oil products in China grew some 38%. The cost of steel products was up 30%.

China has been increasing domestic interest rates and is trying to raise its food production in order to try to keep inflation under five percent per year. Most investment analysts who watch China closely say that this inflation target is virtually unattainable. This is especially the case when you’ve got an economy that’s growing over 11% per year.

So, the cost of food and energy is going up. This is nothing new. As investors, we’ve got to consider this reality and invest accordingly. I guess this is why many farmers say there’s nothing like a Deere.