There is a strong chance that consumer food price inflation will pick up again around the world in the remainder of 2021 and 2022, as the recent sharp increase in international food prices has already slowly started to feed into domestic consumer prices, IMF economists said in a blog.
They said that in some regions retailers, unable to absorb the rising costs, were already passing on the increases to consumers.
“More is likely to come, however, since international food prices are expected to increase by about 25 percent in 2021 from 2020, stabilizing in 2021. A pass-through of 20 percent (13 percent in the first year and 7 percent in the second) would, thus, imply an increase in consumer food price inflation of about 3.2 percentage points and 1.75 percentage points on average in 2021 and 2022, respectively,” said Christian Bogmans, Andrea Pescatori, and Ervin Prifti.
An additional 1 percentage point to the 2021 global consumer food inflation could be added by the higher freight rates, they added.
The impact, however, will vary by country, they said, adding that consumers in emerging markets could experience even higher increases due to the higher dependency on food imports (e.g. countries in sub-Saharan Africa and the Middle East and North Africa).
“The pass-through from producer prices to consumer prices also tends to be larger for emerging markets. For low-income countries struggling from the pandemic, the effects of further food inflation could be dire and risk a backslide in efforts to eliminate hunger,” they added.
According to the economists, emerging markets and low-income countries were more vulnerable to food price shocks because consumers in these countries typically spend a relatively large proportion of their income on food.
An additional risk for emerging markets and developing economies the currency depreciation against the US dollar—possibly due to falling export and tourism revenues and net capital outflows.
“Since most food commodities are traded in US dollars, countries with weaker currencies have seen their food import bill increase,” they said.