The war in Ukraine has pushed up global food prices to historically high levels, intensifying inflation dynamics at a time when global CPI inflation rates are already at multi-year highs, Fitch Ratings says in its latest Economics Dashboard.
The conflict has worsened the outlook for the supply of key grains given the destruction of Ukraine’s port infrastructure, the mining of the Black Sea and international merchants’ avoidance of Russian supplies. Russia and Ukraine are significant suppliers of grains and sunflower oil, accounting for a third of global wheat and barley, and two-thirds of the world’s export of sunflower oil.
Food accounts for about 16% of consumer spending in advanced economies but that proportion is significantly higher in developing countries. “We therefore expect emerging markets to face higher inflation rates given the higher weight of food in CPI baskets but also their high dependence on wheat imports from Russia and Ukraine,” said Robert Sierra, Director in Fitch’s Economics team.
While advanced economies’ imports from the two countries are modest, the surge in global food prices will still affect their CPI rates. In the latest US release, food prices accounted for 1.2pp of March’s overall annual CPI inflation of 8.5%, the highest contribution since 1981 – and this is before the latest surge in grain prices have fed through fully to food inflation.
For central banks, the rise in food prices is a significant development given that there is some academic evidence to suggest that it plays a disproportionate role in fuelling inflation expectations.