Rising Food Prices May Give Bernanke, Central Bankers Heartburn

US - Rising prices for food, from yogurt in the US to steak in South Africa, are causing heartburn at the world's most powerful central banks. The fastest increase in food-commodity prices in at least a decade has already led monetary authorities in England, Mexico, Chile and South Africa to lift borrowing costs.
calendar icon 16 July 2007
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It is also sowing doubts about the US Federal Reserve's focus on core inflation, which excludes food and energy, and about China's gradual approach to tightening credit.

As Fed Chairman Ben S. Bernanke prepares to deliver his semi-annual report to Congress this week, central-bank officials worldwide are anxious that climbing costs may trigger consumer concerns about faster inflation. To keep them from being self- fulfilling, some of the biggest economies might have to push interest rates higher.

"Central banks are more conscious than they've ever been of the danger of allowing inflation expectations to become unmoored," says Louis Crandall, chief economist at Jersey City, New Jersey-based Wrightson ICAP LLC, a unit of ICAP Plc, the world's largest broker for banks and other institutions that trade in financial markets.

An unprecedented surge in global demand is behind the 23 percent rise in food prices that the International Monetary Fund recorded during the last 18 months. "We haven't seen anything on this scale before," says Martin von Lampe, an agricultural economist in Paris at the Organization for Economic Cooperation and Development.

Source: Bloomberg.com
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