London (Business News Report) – Food prices are at their highest levels in more than 10 years amid increasing demand and scarcity.
The crisis of transport and supply chains has caused major problems in food prices around the world.
Meanwhile, government stimulus wears off and consumers’ savings are running out.
Data from the United Nations Food and Agriculture Organization (FAO) Food Price Index shows how grocery prices have jumped back to what they were in 2011.
These increases are attributed to dry weather affecting major grain producers, including drought in the United States and fires in Russia that destroyed the grain crop.
This effect is amplified in the countries of the Middle East, where bread is a staple, which some geopolitical analysts have said, contributed to the Arab Spring.
Currently, the post-pandemic recovery is based on what natural disasters and civil wars did a decade ago to prices, which indicates the scale of the problem.
The demand driven by the Coronavirus is significantly affecting food price inflation. More people choose to cook and eat at home rather than going to restaurants.
Last fall, retail sales data indicated that spending on food and beverages was one of the main drivers of price increases.
While December data showed spending may be on the decline, retail sales of food and beverages are still up 9.3% year-on-year.
Emerging markets such as Mexico and Colombia are also tight. Fresh food prices have pushed up inflation and prompted their central banks to raise interest rates faster than the G10 to combat inflation.
Energy is a major catalyst for inflation as well. Industry veterans believe that demand will start to fall if the price of oil hits $100 a barrel.
Finding the same level of food will be difficult given the effects of fiscal stimulus and savings on spending and demand. Therefore, the market has no choice but to wait and see how all this changes.