Wednesday, February 09, 2011

Why Global Food Price Inflation Really Matters


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," the FAO 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.

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.

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