Food price inflation heaps pressure on poorer countries
Central banks face difficult monetary policy trade-off between taming increases and risking recovery
September 13, 2021 4:00 am by Jonathan Wheatley
Chart showing food inflation soaring in emerging markets
Global food prices have been climbing for a little over a year, heaping pressure on emerging markets where the poorest tend to spend a larger proportion of their income on staples.
Prices have risen 40 per cent over the past 15 months, according to the latest data from the UN’s Food and Agriculture Organization, the biggest gain since surging food prices spurred the unrest of the Arab Spring in 2010-11.
Rising commodity prices do not always feed through to consumers. But this time round, economists at JPMorgan have argued that growing costs are “a signal, not noise” that will drag on growth. The result would be “a purchasing power squeeze on households” that had probably already contributed to a dip in global consumer confidence this summer, the bank said. The impact, it warned, was “far larger” in emerging markets and could last into next year.
Food prices, like energy prices, are often unstable. Factors such as weather and local disruptions can often crank up the price of basic staples. For this reason, they are typically excluded from core inflation — the measure most closely watched by central bank policymakers.
This year, however, both food prices and core inflation are beholden to the same forces: bottlenecks in supply chains, soaring transport costs and other disruptions caused by coronavirus. That means central banks are more likely to nudge up interest rates in response. This was especially likely, JPMorgan said, in countries where inflation was high and consumers were worried that policymakers would not bring it back under control — for example in Brazil, Russia, Mexico, Colombia and Peru.
Analysts at Deutsche Bank said on Friday that even as commodity prices moderated, the danger was that inflation in emerging markets would continue to rise, driven by demand. They warned that central banks “will have an increasingly difficult monetary policy trade-off with slowing growth”.
Russia raised its policy interest rate on Friday for the fifth time this year, in its battle to get ahead of rising prices. There and elsewhere, policymakers may have to raise rates even further, putting their recoveries at risk.