One effect of higher food prices in a given country is higher consumer price index (CPI) inflation.
However, higher food prices affect people in different economies differently.
This effect tends to be much greater for countries that are 1) large net importers of food, and 2) where households spend a greater percentage of their income on food (meaning that they have a much larger weighting of food in their CPI basket).
So, using these two criteria, Nomura analysts put together a chart that shows the impact of rising food prices on CPI inflation in various developed and emerging economies — and they found a pretty clear pattern.
“The impact of rapidly rising food prices on CPI inflation
is substantially larger in emerging market economies (red dots) than advanced economies (black dots),” Nomura’s Rob Subbaraman wrote in the note.
Countries like Nigeria and Bangladesh, with food weighting in the CPI basket of 64% and 58%, respectively, see a higher inflation risk. By comparison, more advanced economies that have food weighting in the CPI basket around 10-20% (like the US or Denmark) see lower inflation risk.
Notably, this isn’t too far off of what happened in the real world during the financial crisis.
“Allowing for the amount of check in economies, we found that during the food price surge in 2007-2008 many economies in our high inflation risk grouping in [the first chart] are the ones that experienced the highest actual CPI inflation rates,” wrote Subbaraman.
You can see in the second chart that the US experienced a relatively low CPI inflation rate at the time (~5%), while countries like Nigeria experienced a relatively high one (~15%).
In short, higher food prices don’t hurt everyone equally. Poorer, developing economies feel it much worse.
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