World Food Prices Jump In August To Near Decade High

In August, the most significant driver of food prices was FAO Sugar Price Index, which jumped 9.6% from July due to frost damage to crops in Brazil, the world’s largest sugar exporter. Readers may recall in “Frost Bites Brazilian Sugar Crop As Prices Zoom Higher,” we noted multiple weather disasters in Brazil severely damaged the sugar crop. 

The second-largest jump in the basket was the FAO Vegetable Oil Price Index, which rose 6.7% last month, as international palm oil prices soared to historic highs because of below-potential production. 

The FAO Cereal Price Index increased 3.4% higher in August versus July. The meat index edged up slightly in August, and the dairy index sunk. 

A combination of global droughts, volatile weather, labor shortages, and supply chain disruptions persisting from COVID, among others, have contributed to the rapid rise in food prices over the last year. 

Heading into fall, soaring food inflation shows no signs of abating and may worsen. This may cause socio-economic turmoil in emerging market economies, mainly because people in those countries allocate more of their daily budgets to food. 

SocGen’s Albert Edwards first warned about soaring food inflation last December ahead of the big rally in food prices in a note that we titled “Why Albert Edwards Is Starting To Panic About Soaring Food Prices.” He said a driver of food inflation has been the global central bank’s ultra-loose monetary policy and warns about uprisings in underdeveloped countries. 

In first-world countries like the US and Europe, surging food inflation hasn’t become a big deal yet, for consumers but may start to irritate the working-poor this fall when supermarket prices are expected to jump. 

Food inflation globally has been ultra-low for the last few decades. Now food prices are soaring, and this could be an indication once the Federal Reserve begins tapering that bond yields will only go up.