Food prices soaring around the world

Natural disasters, higher oil prices and a sharp depreciation of the US dollar will finally make food expensive. And economists are worried.

Food prices are rising rapidly in the world’s largest emerging markets, creating a possible inflationary threat after months of dormant pressure.

The two largest emerging economies in Asia are facing a sharp spike in prices for staple pork products in China and onions in India, which are central to consumer diets.

In Turkey and Nigeria, supply problems are driving up costs.

UN data show that world food prices rose at the fastest pace in October in more than two years.

Although this surge is painful for poorer consumers, it has not reached a level to convince central banks to put a brake on easing policies, as they continue to focus on stimulating economic growth amid a global slowdown.

Average inflation in emerging markets is still at a record low, according to Bloomberg Consumer Price Indices.

“We think that they will most likely look through food inflation, which focuses on several products and is driven by individual factors,” said Taimur Baig, managing director and chief economist at DBS Bank Ltd. in Singapore. “The bias towards further monetary and fiscal easing will continue in 2020, in our opinion.”

However, the threat of price shock is very real. Nomura Holdings Inc. economists recently warned of three potential triggers for higher food prices – weather shocks, higher oil prices, and a sharp depreciation of the dollar – stating that emerging and cross-border markets are at greatest risk because food costs account for most of their consumers’ incomes.

The key question will be whether these increases begin to fuel long-term inflationary expectations of consumers, which could lead to higher wages and spiral core inflation, said Sonal Warma, Nomura’s chief economist for India and Asia ex-Japan.

“This is a big political dilemma for central banks to have higher food inflation on the supply side, while growth is weakening,” Varma said. “The question is: do central banks feel that it is durable or that it is transitory?”