Understanding the Real Picture Behind Coffee Prices
In recent months, many people in the coffee industry have been worried as they watched Arabica prices correct sharply after a period of overheating. But if we only look at the price figures on the screen without looking at the purchasing power of money, we might be misinterpreting the entire picture.
The important question isn't: "How many cents per pound is coffee?"
It's: "Is coffee actually cheap or expensive when adjusted for inflation?"
What the Charts Really Show
When looking at the Arabica KC chart adjusted for US CPI, we will see something very interesting: The current coffee price is actually not necessarily at an excessively high level if compared to the devaluation of global currencies over the past many decades.
This is the point that the majority of coffee people overlook. In economics, we have a concept called: Inflation-adjusted price (which means price adjusted for inflation).
A Simple Example
100 USD in 1980 and 100 USD today no longer hold the same value.
Therefore, if we only look at the nominal price, we will easily fall into the illusion that: "Oh, coffee is very expensive."
But when adjusted for CPI, for the devaluation of money, the story is different. And this becomes even more important in the current context as the entire world is entering a new inflationary cycle.
The Debt Problem
Over the past 20 years, global public debt has increased at an extremely aggressive pace:
- US: 66% of GDP increased to 124% of GDP
- Japan: 175% increased to over 200%
- Global: 68% increased to nearly 100% of GDP
What does that mean? It means the global economic system is operating on a massive amount of debt. And in financial history, when debt rises too quickly, the system usually tends to: print more money, keep real interest rates low, and weaken the purchasing power of currency over time.
This is precisely what we call: Monetary debasement (currency value being diluted).
And commodities are usually the first place to reflect that.
Oil. Gold. Metals. Food. Coffee.
All are assets tied to real energy and labor.
The Energy Crisis Connection
And now we move to the most important part: The conflict in Iran.
A lot of people are looking at this conflict as a military event. But if we look deeper, this is essentially a war aimed directly and intentionally at the global economy and energy.
When oil storage facilities, refineries, and energy systems are attacked, the issue is not just: "How much will oil rise tomorrow?"
But rather: "How long will it take for the global energy system to recover?"
Those are two completely different questions.
A strategic oil reserve or an energy storage facility being destroyed cannot be recovered in a few days or weeks. It can take years.
During that time, what will nations have to do? They will use their strategic petroleum reserves. But after using them up? Then they have to fill them back up.
That creates a very dangerous effect: future oil demand does not decrease. It is pushed backward and accumulates larger.
That is why oil prices might not return to low levels in the short term.
How Oil Affects Everything
And if oil remains above 100-140 USD/barrel or even higher for a long time, then the entire global supply chain will be affected.
Oil is not just fuel. Oil is: shipping, electricity, packaging, chemicals, and especially FERTILIZER.
To produce nitrogen fertilizer, ammonia... requires a massive amount of energy from gas and oil.
Therefore:
Oil rises → fertilizer rises
Fertilizer rises → agricultural costs rise
Agricultural costs rise → food prices rise
Food prices rise → commodity food inflation rises
And coffee is a part of that system.
The Real Issue
This is why I think: The biggest issue right now is not that coffee prices are dropping. Rather, global currencies are losing value much faster than what people think, and the vast majority still haven't truly felt it.
This is not just a story of Vietnam. This is a story of the entire global financial system. In the past, a lot of people thought: "Commodity prices are rising." But sometimes the truth is: Commodities aren't rising too much. It's just that money is getting weaker.
Sticky Inflation
And when that happens over a long period, we enter a state called: Sticky Inflation.
Meaning: Prices can rise very quickly. But once they have risen, it is very difficult for them to come down. Just like a bowl of pho, house rent, transportation costs, labor costs. Once a new price plateau is established, the economy rarely ever returns to the old levels.
The Real Question
Therefore, the most important question in this period is not: "How much will coffee prices drop?"
But rather: "How much more will the purchasing power of money decrease in the next 5–10 years?"
And if looked at from that perspective, it is highly possible that we are still living in the early stages of a repricing cycle of global commodities.
In which coffee is just a part of a much larger picture.
Ps: In the current chaotic situation, I will offer a different, deeper perspective on coffee prices and why it is a part of the entire global economic chain. This is a perspective for you guys to reference