As energy prices rise inflation With major economies at multi-decade highs and central bankers locked out, the next source of pressure could come from food prices, according to Nomura Holdings Inc.
“Foods carry a much larger weight in the CPI than energy, and especially in emerging market economies,” Nomura analysts led by Rob Subbaraman said in a research report. “It is in food prices where the seeds of the next crisis may already be sown,” he said, adding that higher energy prices are likely to have a stronger second-round effect on food.
Rising energy costs, supply chain bottlenecks and post-lockdown demand have combined to fuel rapid global inflation. US consumer prices rose last month at the fastest annual pace since 1990, and China’s factory-gate inflation hit a 26-year high.
Nomura said that even before the Covid crisis, there were basic supply-demand factors that pointed to a rise in food prices, such dynamics exacerbated by the pandemic and rising energy costs.
Under the hypothetical scenario of a 15% increase in global food prices by the end of 2022, analysts see rising inflation expectations pushing central banks to “tighten policy earlier and faster”.
Another potential impact would come from the “volatile” nature of food consumption, which could reduce the real disposable income of households available for other goods and services. The latter will exert downward pressure on inflation, requiring central banks to assess the outcome of opposing forces. ,
The report revealed:
- For the European Central Bank, a 15% food-price shock could push the headline CPI above 4% by the end of 2022, while the current consensus is below 2%. With the ECB likely to end its pandemic emergency buying program by then, markets may ask how quickly rates will be hiked.
- Food prices may be less of a problem for the Bank of England and the Federal Reserve due to their smaller weighting in the CPI basket. Still, a 15% increase in food prices could raise the headline CPI by 1.5 percentage points relative to current forecasts for both the US and UK.
“We have seen that the rise in energy prices is now well factored into inflation forecasts,” analysts said.
According to Nomura, “but the potential spillover of that energy spike in food prices is little talked about,” and there could be a significant inflationary surprise next year that could force central banks to revise their forecasts. Is.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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