Inflation in the world now shows a divergent trend: with a downward trajectory in North America, with rebounds in Europe and a large part of Latin America, while Japan and China seem to be heading towards deflation.
As if that were not enough, the world is just beginning to try to recover from what was a historic food inflation registered during the past year, its effects will continue for several more months. Without forgetting the Russia-Ukraine war, which was the triggering factor for the increase in food prices and which will not be resolved as long as the conflict continues.
Historic inflation in food, due to the war
The FAO (Food and Agriculture Organization of the United Nations) price index measures the monthly variation in international prices of five basic foods: meat, dairy products, cereals, vegetable oil and sugar. Last year this index reached its maximum historical level. The figures had not been made public due to a review of the methods, but it is now official: Food inflation registered in 2022 was the highest on record, even in periods of hyperinflation.
What happens is that the performance of the crops greatly influenced the measurement of this index, as well as the Russia-Ukraine war, a war that has and will have more repercussions than many people imagine.
Said index considered in the case of cereals such as wheat, as well as oilseeds (oils and fats), that at the time of the Russian invasion of Ukraine, that is, at the beginning of the conflict, 30 percent of international wheat exports They came from these countries, which in turn controlled 60 percent of the world market for sunflower oil and 15 percent of the corn market.
Russia is also one of the largest exporters of fertilizers in the world, using this position as a weapon of war, since between February and April 2022 it prohibited the export of ammonium nitrate, essential in agriculture. The effect was forceful, a strong impulse was provoked in food prices in the spring of last year, only comparable to that registered between 1972 and 1974.
The war was a determining factor for the position of the two countries in conflict: For example, the agricultural area in Ukraine represents 71.2 percent of its entire territory. 56.1 percent corresponds to arable land, making it the first European country by volume of farmland: however, 22 percent of Ukrainian agricultural land has been occupied by Russian troops since the start of the conflict. Regions that mainly export wheat, corn, sunflower oil and canola.
For its part, the agricultural area in Russia constitutes 13.1 percent of its total territory (do not forget that it is the largest nation in the world by total area), while arable land represents 7.3 percent. In this region, the agricultural products that are most produced and exported to the world are wheat, beets, sugar, potatoes, barley, sunflower seeds, corn, oats, and soybeans.
At the beginning of this year, Ukraine’s Ministry of Agriculture estimated that 20 to 30 percent of arable land could be left uncultivatedwhich represents a productive decrease that goes from 40 to 70 percent.
With these figures, food inflation had no choice but to skyrocket, as it did; In this context, countries around the world assimilated it in different ways, the effects have been diverse, one of them is the contribution of the divergence in inflation. Average global food inflation reached triple digits.
different strategies
The divergent behavior of inflation has caused central banks to adopt different monetary policy strategies, the point is that the world is heading towards a scenario of different regional or national scenarios, with blocks that defend different interests or have commitments that others do not they have, a multipolar world that in the end leads to nothing.
For example, while in the United States the inflation rate is on the decline and the central bank is likely to take a monetary pause soon, in Europe it is highly probable that the restrictive monetary policy will be maintained for a whilewhile in much of Asia deflation rears its head.
An analysis by Barclays Bank notes that the US CPI and wages have offered respite from inflation concerns; according to the consensus, the basic services categories experienced greater disinflation, driven by falls in lodging away from home and airfare. Basic goods inflation, on the other hand, accelerated more than expected, driven by a sharp rise in used car prices, which are still largely seen as transitory.
However, China’s inflation surprised on the downside for the third consecutive month in April, falling 0.6 per month and 0.1 per year; the fall was mainly explained by the deflation of the CPI for goods, which registered its lowest level since November 2020, led by the fall in pork prices, the fall in energy prices and continuous car price wars.
In Europe, the Bank of England raised the benchmark rate 25 basis points to 4.5 percent last week; additionally, four consecutive increases of 25 base points are expected in the Bank Rate of the European Central Bank, so that it will be placed at 3.75 percent at the end of 2024. For the ECB, the debate has shifted to whether the increases should continue beyond July. Some members (Nagel, Kazaks, Kazimir) hinted at hikes beyond July, while others suggested that the distance from the terminal rate is “marginal” and expect that rate could be as low as 3.75 percent.
On the part of the Fed, a pause is expected to begin between June and July, which in theory should last the rest of the year, although due to uncertainty and volatility, there will surely be periods of strong speculation about what it would do. the Fed meeting after meeting.
Although it has no direct influence on inflation, the collapse of bank shares has led to a scenario of greater uncertainty. The PacWest bank pointed out that its deposits fell 9.5 percent last week, which indicates that the regulatory measures may not be as effective as expected, becoming a relevant factor that can put pressure on final prices in the coming months due to the imminent credit crunch to come. In this context, Barclays Bank analysts point out that in China the increase in deflation risks increases the probability of more monetary changes, far from what they will do in the West, further proof of inflationary divergence, another factor of uncertainty.
also drought
According to Bloomberg figures with data from the FAO, in 2022 the production of primary grains was 2,756 million tons, 2 percent less than the previous year, while the production of coarse grains for animal feed was 1,462 million. , 3.1 percent lower. This drop was due to both the war and the drought that affected much of Europe in 2022.
The drop in global production could not be offset by the increase in production in countries such as Indonesia, Kazakhstan or Paraguay; FAO notes that it also expects a decline in stocks, which, down 1.6 percent from 2021, have reached the lowest levels since 2013.
This United Nations organization estimates that the average increase in food in 2022 was 14.3% compared to 2021 and that the strong rises in cereals and oils had an important weight. The drought hit several regions of the world hard and increased global prices.
Divergent inflation will lead to a multipolar monetary world, something that has not worked well in other times.
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