"Food" for thoughts: Is the trend decline over?

5 min

Growth is gradually accelerating in the world economy. World growth is expected to reach +3.3% in 2018, after +3.2% in 2017. And demand for food should follow suit. Is it enough to balance supply and demand? During the last years, a number of food commodities were hit by oversupply and hence saw their prices go down, which in turn reduced inflationary pressures in the world economy. In 2018, worldwide CPI inflation should not particularly accelerate (+2.5%). Increasing food prices would create upward risks to this scenario and help commodity exporters. Are we about to observe more food inflation? Not sure, but grain prices increased a bit in Q1 (up +6% from Q4), after reaching their historical trough in November 2017. Overall, food prices are still much lower than 5 years ago, as they decreased by about -50%. So, inflation is not a risk in the short-run. However, even a little more inflation could cut household purchasing power in the short-run since wage growth is significantly lower today compared to the last decade.