Global food price rises adds to inflation risks

The United Nations Food and Agriculture Organization (UN FAO) said today that food prices had reached an all time high following the impact of the Egyptian crisis and potential knock on effect to traffic through the Suez Canal.

The FAO measures food prices from an index made up of a basket of key commodities such as wheat, milk, oil and sugar.The index hit averaged 230.7 points in January, up from 223.1 points in December and 206 in November. Ten years ago, the index was at 90, illustrating how prices have soared in the last five years. The FAO's Cereals Price Index, which includes prices of main food staples such as wheat, rice and corn, rose to an average of 244.8 points in January, the highest level since July 2008.

Prices have been driven up by a combination of increasing consumption, stockpiling and speculation. Bad weather has not helped, for example, with Australia badly hit in recent months by flooding and Argentina suffering a prolonged drought hitting beef production.

Rising food costs is bad news for the developed economies with inflation risks  increasing as a result of a general rise in commodity prices e.g. Brent Crude went over $103 dollars today. The Bank of England has a difficult task ahead with the threat of inflation but with sluggish growth.