Agflation, message from India
I know that we have just celebrated the World Pizza Day, but I am going to write about rice. Those who fancy risotto or sushi should prepare to reach further into their pockets, as rice prices continue go North and recent signals confirm that it may be a longer term trend.
I have written about upcoming surge in world food prices many times on this blog. Only a combination of very positive supply events, which seems very unlikely, will stop agflation. See my posts here and here and here .
Yesterday India, the third largest world exporter of rice decided to ban non-basmati rice exports. While most of the rice output is consumed in the home country, trade has always helped to mitigate sharp price movements. And it is just one in a series of decisions taken by countries to make food exports more difficult. World food inventories are at very low level, so authorities are becoming nervous.
Brief world rice market characteristics provided by AgMRC is here. Chart with rice price futures is below.
These price trends could turn the life of central bankers into a nightmare. In Poland core inflation is running below 2% but people are convinced that inflation is very high amid rising food prices (at 8% rate). I was on TV the other day and even the lady that powdered my face before going on air told me that inflation in Poland is very high, that all prices go up. This will soon feed into wage claims, as we see it in Poland, Germany and other countries, with war for talent in Chindia as best example. Fed is busy fighting recession now, but the longer term worry is global agflation turning into persistent rise in inflation expectations. Well, at least until the next wave of 200 mln Chinese labor surplus hits world markets, but it will take few years. Let’s keep fingers crossed for good weather and good crops in 2008.