Weather shocks, higher oil prices and a sharp depreciation in the US dollar could make food expensive, warn experts.
Pork prices have been surging in China as African swine fever ravaged supply, while India has been struggling with eye-watering onion prices due to extended monsoons [File: Dania Maxwell/Bloomberg]
Food prices are climbing fast in the world’s biggest emerging markets, posing a possible inflation threat after months of dormant pressures.
Asia’s two largest developing economies face a price surge for staple products — pork in China and onions in India — that are central to consumers’ diets. In Turkey and Nigeria, supply problems are driving up costs, while United Nations data show global food prices rose at the fastest pace in October in more than two years.
While the spike is painful for poorer consumers, it hasn’t reached a level to convince central banks to pull the brake on policy easing, as they remain focused on boosting economic growth amid a global slowdown. Average inflation across emerging markets is still at an all-time low, according to a Bloomberg gauge of consumer price indexes.
“We think it’s likely they would look through food inflation that is concentrated on a handful of products and driven by idiosyncratic factors,” said Taimur Baig, managing director and chief economist at DBS Bank Ltd. in Singapore. “Bias toward further monetary and fiscal easing will remain in 2020, in our view.”
Nevertheless, the threat of a price shock is real. Nomura Holdings Inc. economists recently warned of three potential triggers of higher food costs — weather-related shocks, higher oil prices and a sharp depreciation in the dollar — saying emerging and frontier markets are most at risk since food costs make up a larger portion of their consumers’ income.
The key will be whether the increases begin to feed into consumers’ longer-term inflation expectations, which could drive up wages and core inflation in a spiral, said Sonal Varma, Nomura’s chief economist for India and Asia ex-Japan.
Pork prices doubled in October following massive livestock culls to protect against swine fever, pushing up consumer inflation to 3.8%, the highest level since January 2012.
In India, where spikes in the cost of onions have sparked social unrest in years past, a 26% year-on-year rise in vegetable prices pushed October headline inflation above the Reserve Bank’s threshold of 4% for the first time in 15 months.
Food inflation hovered near 30%
has pushed Zambian inflation to a three-year high, and monthly food inflation in Zimbabwe has reached almost 50%