Latest data from the United Nations food agency shows that the cost of some global commodities rose in July, adding to concerns that the current decline in food price inflation could start to slow in the months ahead as new cost pressures emerge.
The FAO Food Price Index, which tracks monthly changes in the international prices of globally-traded food commodities, averaged 123.9 points in July, up 1.3% from the previous month but still 11.8% below the level in the same month last year.
The increase was driven by a jump in the Vegetable Oil Price Index, which rose 12.1% from June after seven months of consecutive declines. International sunflower oil prices rebounded by more than 15% in the month, due mainly to Russia’s decision to end implementation of the Black Sea Grain Initiative. World prices for palm, soy and rapeseed oils also increased on concerns over output prospects in leading producing countries.
The Cereal Price Index declined by 0.5%, driven by a 4.8% drop in international coarse grain quotations due to increased seasonal supplies of maize from harvests in Argentina and Brazil and potentially higher-than-anticipated production in the US. However, the FAO noted that international wheat prices had risen by 1.6%, their first monthly increase in nine months, due to renewed uncertainty over exports from Ukraine.
Following India’s recent export ban, the All Rice Price Index increased by 2.8% on the month and 19.7% on the year to reach its highest nominal level since September 2011.
This upward pressure on rice prices “raises substantial food security concerns for a large swathe of the world population, especially those that are most poor and who dedicate a larger share of their incomes to purchase food,” FAO warned, adding that export restrictions can bear adverse consequences on production, consumption and prices that last beyond the duration of their implementation and risk exacerbating high food domestic inflation in many countries.
Meanwhile, the Sugar Price Index shed 3.9% in July, marking a second straight monthly drop on favourable supply prospects in Brazil and India, though prices were nearly 30% above a year ago. The FAO’s dairy and meat price references fell 0.4% and 0.3% respectively.
As well as Russia’s grain blockade, analysts have highlighted that the recent heatwave in Europe could impact harvest yields in key growing regions.
Farmers in the UK have also warned that local harvests of wheat, oilseed rape, potatoes and other crops have been hit by the cool, wet summer, adding to food inflation pressures. Last week, the Bank of England warned that the figure is likely to remain in double digits until the end of the year.
NAM Implications:
- Sustained double-digit inflation means:
- The Bank of England will continue to raise interest rates
- The government will increase taxes and reduce expenditure
- And consumers will become more uncertain and unwilling to spend
- All part of the New Norm.
- i.e. opportunities for those prepared to go back to basics…
- …and deliver more than it says on the tin, every time.
- And better than available competition…
