Food Inflation

Why Global Food Price Inflation Really Matters

Posted 9:50 AM 02/04/11,,

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Perhaps central bankers are like potted plants, able to subsist on little more than water and sunlight. That would help explain Federal Reserve Chairman Ben Bernanke's statement Thursday that -- rising commodity prices notwithstanding -- overall inflation remains "quite low." As for folks who eat food, well, global food prices hit an all-time high last month, in both nominal and inflation-adjusted terms, according to the U.N.

True, wildfires in Russia last year, drought in the U.S. and flooding and a cyclone in Australia have helped cause price spikes for wheat and sugar. But the longer-term trend is still the same. Global food prices have increased for seven straight months, the Food and Agriculture Organization of the U.N. said Thursday, as its closely watched food price index hit its highest level ever in January.

Food Commodities Rising

"Prices of all the commodity groups monitored registered strong gains in January compared to December, except for meat, which remained unchanged," theFAO said in a release. Indeed, the index topped its prior peak set in mid-June 2008, when the global food crisis set off riots around the globe. Sugar, which has reached all-time highs, has been the main culprit this time around, but prices for cereals and oils also have gone nearly vertical since June. (See the chart below.)

So-called core inflation excludes volatile food and energy prices in an attempt to give a more accurate picture of long-term inflation. That's why Bernanke can say inflation remains muted. Take out food and gas prices, and inflation really is pretty low.

But even some bullish economists aren't buying it, like Ed Yardeni, president of Yardeni Research. He's starting to fret that Bernanke may have unleashed a global inflation beast with his second round of quantitative easing.

"Governments are scrambling to purchase more grains to quell food riots," said Ed Yardeni, president of Yardeni Research, in a Thursday note to clients. "The idea was to avert deflation and to bring back just a tiny bit of inflation. The unintended global consequences seem to be hoarding, hyper-inflating commodity prices, food riots and revolutions."

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