Record high food prices are moving to the top of the agenda for many policymakers as the prospect of higher inflation in 2011 poses a major threat to the revival from the global financial crisis.
The United Nations’ food agency announced on Wednesday that global food prices had hit a record high last month, moving beyond the levels that prompted riots in 2008 in countries as far afield as Egypt, Cameroon and Haiti.
Following severe supply shortages, prices of key commodities, such as wheat have rocketed in the past 12 months. Illustrating the food price pressures, wheat rose 47% last year, buoyed by a series of weather events including drought in Russia and its Black Sea neighbours.
The agency said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month of 214.7 points - up almost 4.2 per cent from November.
The food index is at its highest since the measure was first calculated in 1990. During the 2007-08 food crisis, the index reached a peak of 213.5 in June 2008.
Though the organisation said the increase did not constitute a crisis, many countries have revealed the knock-on effect of rising prices of wheat, for example, saying that retailers would be forced to raise the prices of products.
Meanwhile, food inflation in many Asian countries, including China and India, is already in double digits, raising fears that the price pressures could spread more broadly to other sectors and pose a threat to both economic and social stability as millions of Asians live in poverty.
"Food price inflation could really go into double digits across the region and rise to such an extent that it undermines the purchasing power of households and as a result then slows consumer demand and overall economic growth," Frederic Neumann, regional economist at HSBC in Hong Kong told Reuters.
"And that’s a problem for Asian economic growth. But really it’s also a problem for the rest of the world because as the Asian consumer increasingly is helping to stabilise world demand, it’s actually a challenge of wider global significance."
Indeed, South Korean authorities sounded the alarm on Thursday over rising commodity prices, Reuters reported.
The finance ministry said it would make an effort "on all fronts" to curb price pressures, which it blamed on surging oil and commodities prices and the central bank signalled rate rises to come by saying it would keep inflation within its target zone of 2 percent to 4%.