Global And Regional Food Consumer Price Inflation

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Global and Regional Food Consumer Price InflationMonitoringOctober 2014 – Issue 6Global OverviewAs forecasted in the previous release1, global food consumer inflation has evolved in the range of 55.5% year-over-year in the period from May to July 2014. After a year-over-year increase of 5.1% inApril and 5.4% in May 2014 ( 5.4%, food price increases slowed down to 4.9% in July, the last monthfor which data were collected. We forecast year-over-year inflation of 3.2% in October 2014, in linewith the steady reduction in the reference prices of major agricultural commodities (Chart 1 and Table1).This trend is foreseen to be common to all regions. Asia is forecasted to experience a 3.0% year-overyear food price increase in October 2014, half its May 2014 level. In South-America and in Africa, theslowdown is expected to be less marked. In Europe and in North America, consumer food inflationshould remain low in the range of 1-2% and 2-2.5%, respectively, during our forecast period.At the sub-regional level, only South-Eastern Asia is expected to experience increases in food inflation,with an increase of 7.2% in October 2014, following a 4.4% increase in July. At the other extreme, foodinflation in Eastern Africa is expected to decline at a faster pace than in other sub-regions, falling to a1.1% increase in October 2014, following a 4.4% increase in July. The food price dynamics in EasternAfrica is known to follow more closely changes in the price of major agricultural commodities2,reflecting lower processing and marketing margins than typical for other regions.With the exception of Eastern European countries, food prices in Europe will barely increase at all.From August to October 2014, Southern Europe expects to see a continuing decline.1Global and Regional Food Consumer Price Inflation Monitoring, July 2014, Issue 5See for example Cachia, Regional Food Price Inflation Transmission, FAO ESS Working Paper No. 14-01, April 20142

Chart 1 Food consumer price inflation – Global and regions (y-o-y)Table 1 Trends in global and regional consumer food price inflationGrowth rates hern Africa7. Africa9. Africa9. Africa6. AfricaLatin America and theCaribbeanSouth 29.58.410. .63.94.3Northern 3.0Eastern Asia10. Asia2. Asia6. 1.2Southern Europe3.22.72.7-1.5-1.6-0.8-0.2Eastern Europe8. Europe5.13.03.1-0.2- Europe2.32.92.8- monthly inflation rates are year-on-year growth rates (month m / month m-12) * Forecasts

Table 2 Intra-regional variability in food price inflationStandard deviationsin percent2011201220132014*Southern Africa3. Africa8. Africa6. Africa6.610.26.09.9Eastern Africa13.310.46.64.5South America4. America3. America0. Asia4. Asia8. Asia4.111.533.510.4Southern Asia7.011.312.26.6Southern Europe3. Europe10. Europe3. Europe2.* Up to July 2014Regional focus: AsiaFood inflation in Asian countries fell almost continuously since the end of 2013 after reaching a two anda half year peak of 10% in November 2013. The Asian region expects to see food price inflation to fallto 3% in October, compared to a 5.1% increase observed in July 2014. Declining food price inflationextends to all Asian sub-regions except to South-Eastern Asia, where food inflation is expected toremain persistently high.Part of this decline in food inflation is due to the fall in agricultural commodity prices, as measured, forexample, by the FAO Food Price Index,3 which fell for the sixth consecutive month in September 2014.However, this factor is insufficient in explaining food inflation dynamics: transmission of price changesfrom international commodity markets to food consumer markets is slow and incomplete. On the basisof transmission elasticities for Southern Asia published in a recent study4, the decrease in agriculturalcommodity prices observed since April 2014 has resulted into a reduction of only 0.9% in food inflationin this region, an amount insufficient to explain the extent of the oodpricesindex/en/such as Cachia (2014), already cited above.

Region and country-specific factors are, therefore, essential in explaining food inflation trends.Consumer inflation in China was particularly tame in the past few months, due to a slowdown ineconomic growth and persistent overcapacity in the industrial sector. Figures released recently by theNational Bureau of Statistics indicate that inflation in China reached a four-year low of 1.6% inSeptember. Food inflation followed the same trend as general inflation: in the eight months up to August2014, food prices rose at an average pace of 3.4% year-over-year, compared to 4.2% for the same periodof 2013. In August, pork prices, a big component of the food index, declined by 3.1%, while vegetableprices dipped 6.9%, dragging down food inflation.Chart 3: Food consumer price inflation – Asia and sub-regions (y-o-y)In India, food inflation in the first eight months of 2014 almost halved to 7.5%, compared to 13.4% inthe same period in 2013. Recent data released by the Central Bank of India shows that food inflationreached a multi-year low in September 2014, dragged down by lower vegetable prices. It is too early tosay if this is the result of supply-side measures recently taken by the government to curb food inflation,which consistently evolved at two-digit rates, or if the slowdown in inflation was due to a combinationof a number of factors.Food inflation was considerably lower in Western Asian countries, with a year-over-year inflation ratethat dropped from high double-digit rates in 2013 to less than 5% in July 2014. Our forecasts for thethree months to October 2014 indicate a further slowdown in food inflation. This regional trend masksdivergent country dynamics: food inflation in Turkey, the most important country of the region in termsof population, remains at high levels of over 10%; while food inflation in Saudi Arabia started toslowdown in May 2014 and remained at nil or even negative for Jordan and Israel, respectively.In contrast to almost all other regions, our forecast for South-Eastern Asia indicates a pick-up in foodinflation from 4.4% in July 2014 to 7.2% in October. Recent trends in some of the major countries ofthis region confirm the persistence of food inflation: in Indonesia, chicken and soybean prices are risingand retail rice prices, which evolved at relatively high levels in the first half of 2014; they are expectedto rise again in October5. In the Philippines, the price of commercial rice rose steadily over the past year5Asia Pacific Food Price and Policy Monitor, October 2014, Issue 15, FAO

due to a reduction in supply caused by lower-than-normal precipitation. In addition, seasonal supplyshortages have led to persistently high inflation in the price of fruits and vegetables6.Box 1 Data revisions 6IbidChad has been added to the computation of food inflation estimates for Central AfricaArgentina has revised upwards its food inflation figures for the first months of 2014

Definitions and AcknowledgementsFAO’s Global and Regional Food Consumer Price Indices (CPI) measure food inflation for a group of countriesat different geographical scales: sub-regional (e.g. South America), regional (e.g. Americas) and global (world,all countries). The Global Food CPI covers approximately 150 countries worldwide, representing more than 90%of the world population. Unless otherwise stated, monthly inflation rates represent annual, year-over-yearinflation pertaining to that specific month.The aggregation procedure is based on the use of population weights. Population weights may better reflectregional food inflation and its impacts on households, while using the Gross Domestic Product (GDP) or anyother measure of national income may better reflect the impact on the economy as a whole. Using GDP wouldalso mean giving a higher weight to countries less exposed to food insecurity, because households in countrieswith higher GDP tend to be richer, spend a lower proportion of their income on food and benefit from aneconomic environment characterized by lower and less volatile consumer price inflation.The source of data for the country CPIs is the International Labour Organization (ILO), the UN Statistics Divisionand websites of national statistical offices or central banks. We gratefully acknowledge the Statistics Division ofthe ILO for their methodological and technical guidance on the compilation of global and regional food inflationindices. Please also note that the ILO publishes twice a year world aggregates of food and all items CPI, based onGDP weights, as part of the Global Trends in the Labour Market ( of significant conceptual and methodological differences involved in the compilation of national CPIs bycountries around the world, global and regional CPI aggregates should be interpreted with caution.Next releaseCountry Consumer Food Price Indices are updated every month on FAOSTAT. Regional and Global indices areupdated every quarter. The next release presenting global and regional trends will be on January 16th 2015.Contact informationFor more information, or to enquire about the concepts, methods or data quality of the CPIs, contact the PriceStatistics Team of FAO’s Statistics Division ([email protected] / 00 39 0657052553).