Global Biz

Food price increases to have far-reaching impact

(Xinhua)
Updated: 2011-03-19 10:51

WASHINGTON - Steady rises in global food prices may continue and it will have far-reaching impact, especially on the poor, two International Monetary Fund economists say.

"Steady rises in the price of food since 2000 seem to be a trend, and not just the result of temporary factors," IMF economists Thomas Helbling and Shaun Roache say in a Finance & Development magazine article released Thursday.

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The IMF's food price index - which tracks the spot prices of the 22 most internationally traded agricultural food items -- is now close to the spike previously reached in June 2008.

Hebling and Roache noted that many countries are struggling with the implications of high food prices, which exacerbates poverty, inflation, and - for countries that import food - the balance of payments.

"The implications are far reaching. Witness the recent social unrest in the Middle East and North Africa, some say in response to high bread prices," the article said.

Everyone notices when food prices go up. But the poor are hit especially hard because food makes up a much larger share of their total expenditures. They have little room to buy cheaper food items or to spend less on other purchases.

The article cited several factors that pushed food prices up, including bad weather, richer people, trade curbs, and biofuel development.

Hebling and Roache said that the surge in international food prices has already caused consumer price inflation in many economies in early 2011.

Such direct "first-round" effects are part of the normal passthrough of prices, and will fade with time. But if people expect food prices to continue to go up, they begin to demand higher wages, and this leads to  "second-round" effects - an increase in core inflation.

"The world may have to adjust to higher food prices," the article concluded.