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.
“This is a big policy dilemma for central banks, to have supply-side driven higher food inflation while growth is weakening,” Varma said. “The question is: Do central banks believe that this is durable or that it’s transitory?”
Here’s how the phenomenon is playing out in key emerging markets:
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. Though pork prices have since come off their recent highs, economists expect inflation to peak at 5% or 6% in January. Inflation at that level could impede central bank efforts to ease monetary policy and boost an economy amid an ongoing trade war and weak domestic demand.