Corn Ethanol Endangers Economy, Strategist Warns

"You can take out food prices" from core inflation "as long as everybody stops eating." So says Jose Rasco, U.S. investment strategist at Merrill Lynch. He joined "Squawk on the Street" to explain how corn-based ethanol is driving "agflation" -- rapidly rising food prices -- and potentially threatening the overall economy.

Rasco told CNBC's Mark Haines that food prices, usually removed from inflation calculations, should actually be given more weight. The investment strategist pointed to the rule-of-thumb that says food inflation is twice as important to consumers as energy prices. He noted that budgeting energy, however painful, is possible -- but food rationing is far less practical, "unless we all go on a serious diet."

He said agflation is also complicated by "global supply and demand imbalances." He explained that with the biggest corn plantings since 1944, and wheat and soybean production "the lowest in decades," there is "pressure throughout the food chain" -- affecting prices of grain byproducts and meats.

"Rising food prices will have a material affect on the economy," Rasco warned. "The middle class to lower-middle class are going to be squeezed."

Contact Squawk on the Street

  • Carl Quintanilla is an Emmy-winning reporter and co-anchor of CNBC's "Squawk on the Street," broadcast live from the NYSE.

  • Simon Hobbs co-anchors the 10 a.m. hour of CNBC's "Squawk on the Street" live from the New York Stock Exchange.

  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

  • “Squawk on the Street” Co-Anchor

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.