Not just energy: Rising global inflation could send food prices soaring! - LEVENT YILMAZ

Not just energy: Rising global inflation could send food prices soaring!

If we list the most important problems facing our world today, undoubtedly inflation comes out on top. Particularly, as the repercussions of the pandemic period on certain commodities and sectors increase, global inflationary pressure, economy leaders and central banks are forced to devise unusual policies to counter these new risks.


WHAT IS OUTSIDE CENTRAL BANKS’ CONTROL?

The primary task in combating inflation falls on the shoulders of central banks. However, it is not possible for central banks to suppress some price movements with their policy tools. Of course, it is possible to influence pricing behavior to a certain extent by suppressing demand with monetary policy tools. However, this has a very limited effect on global energy and food prices.


ENERGY PRICES CONTINUE UPWARD TREND

After the shock that came in the form of "sudden demand" at the beginning of the pandemic, oil prices, which fell below 30 dollars per barrel, are now pushing 90 dollars. 

Similarly, the increase in natural gas prices continues to cause headaches for economy leaders. It is possible to observe the price increases in energy with the help of Bloomberg's "Energy Spot Price Index". The index which includes prices of WTI and Brent oil, along with Henry Hub natural gas, heating oil, gasoline and electricity prices comprises a basket with certain weights afforded to each item. The index has more than doubled over the past year.


FOOD PRICES TO CAUSE HEADACHES

Similar to energy commodities, we observe a sharp increase in global food prices. 

Global food prices’ upward trend was quite significant to begin with in the pre-pandemic period. In particular, the effect of factors related to climate change on the main supply-demand factors was pushing food prices upwards. 

We have witnessed the acceleration of this process during the pandemic. Let's move on to the main threat. Food has a significant weight in the inflation basket of all countries. Meanwhile, there’s also high price transitivity increases in energy commodities which will impact unprocessed and processed foods. If we look at it in this way, global food prices will continue to be a major thorn in economists’ side in the coming period.


As you can see, increasing energy and food prices are not just problems faced by Turkey alone.

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