* UN food price index rises to six-year high
* Food price jumps force Brazil, Turkey central banks to act
* Mixed evidence of food inflation being transitory in EM
By Karin Strohecker
LONDON, Feb 8 (Reuters) - For Cleanne Brito Machado, like
millions of people in developing countries around the world,
shopping for staple foods such as rice, beans, oil or potatoes
now means making hard choices.
"The shopping cart is getting much smaller and we're paying
much more," said the 41-year old, who works as a maid in
Brazil's capital Brasilia. "We've had to give up on little
trips, visiting family at the weekend, and we haven't been able
to save any money for emergencies or to have in the bank."
A mix of currency depreciation, rising commodity prices and
coronavirus disruptions saw food inflation soar 14% last year in
Latin America's largest economy - the biggest increase in nearly
two decades. The headline figure masks hikes in staples, such as
a 76% jump in rice or a doubling of soy oil prices.
Other developing countries from Turkey to Nigeria also
recorded double-digit jumps in food inflation. Major wheat and
corn exporters such as Russia or Argentina have introduced curbs
or taxes to preserve domestic stockpiles, exacerbating pressures
elsewhere.
United Nations data showed food prices hit six-year highs in
January after rising for eight consecutive months. The unwelcome return of food price pressures has put
policymakers and investors on high alert, worried what it means
for inflation more broadly while economies are still reeling
from the coronavirus crisis.
"Central banks will be watching the level of food prices
quite carefully over the next few months because they will have
to make a decision on whether to respond to this or not," said
Manik Narain, head of emerging market strategy at UBS.
Food is the single largest element of inflation baskets in
many emerging markets, accounting for around half in countries
like India or Pakistan compared to less than 10% in the United
States.
Rising food prices have contributed to social unrest in the
past. Climate change effects are expected to exacerbate price
swings and rising energy prices add to the pressure.
For those like Machado, higher food bills leaves less to
spend on other goods, squeezing demand for items from travel to
eating out.
Many countries have already seen hard currency revenues from
sectors such as tourism crater and they lack the capacity of
their richer peers to pump in stimulus.
For central banks, the temptation may be to let inflation
rise and keep monetary conditions loose to support growth, say
analysts.
"It is a very difficult balance - governments in emerging
markets are damned if they do and damned if they don't," said
David Rees, senior emerging markets economist at Schroders.
"As a policymaker - do you choose to support your population
or choose keeping the markets happy?"
Developed economies generally see food inflation as
transitory. But in developing nations, persistent food price
rises in the run up to the 2008 financial crisis lifted core
inflation, prompting years of interest rate hikes.
CAUTIONARY TALE
In Istanbul, food market vendor Seref Geyik says he has seen
the effect of opening hours cut short by the pandemic and rising
wholesale prices of fruit and vegetables.
"Consumers are leaning towards cheaper stalls, they are not
looking for good quality produce," the 53-year old said.
Relying heavily on imported unprocessed foods, Turkey saw
food price rises accelerate from August, when the lira chalked
up monthly losses of 5% or more against the dollar.
With nearly all its energy also imported, rising energy
prices from early November have added to the pressure. Dry
weather has meanwhile hampered production of some local crops,
from hazelnuts and chestnuts to apricots and olives.
Turkey's experience of chronically high inflation two
decades ago is a cautionary tale of how price pressures can
derail economic growth and shatter household and investor
confidence.
New central bank governor Naci Agbal has launched a
dedicated department to monitor food and agricultural prices to
serve as an "early warning" system.
In January, Brazil's central bank abandoned forward guidance
that rates would stay low after the real came under pressure and
bond markets sold off. In a nod to changing priorities, deputy
governor Fernanda Nechio said keeping inflation under control
has helped lift large numbers of people out of poverty.
Analysts predict Russia and South Africa will make the same
journey.
Keeping interest rates unchanged in December, Russia's
central bank governor Elvira Nabiullina pointed to secondary
effects from a rise in global food prices and the weaker rouble.
Few expect pressures to ease soon, with Chinese demand which
sent global cereal prices to a six-year high showing little sign
of abating.
Rice price increases led to unrest in several countries
during the 2008 food crisis, and food inflation was a
contributor to the Arab Spring revolts a decade ago.
"We have seen in the past instances of protests apparently
at least triggered by food price spikes, (especially) when
prices of staples are increasing," said Moody's managing
director Marie Diron.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EM food inflation and FAO https://tmsnrt.rs/2YSuMjk
Inflation in emerging markets https://tmsnrt.rs/2Na0SUQ
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>