Food Costs at 6-Year Low Trouble Central Banks and Aid Consumers

January 7, 2016 07:22 AM
Food Costs at 6-Year Low Trouble Central Banks and Aid Consumers

Global food prices ended 2015 at the lowest in more than six years, adding to the headache for central banks concerned about deflation while bringing a windfall to the poorest consumers.

A gauge of average annual food costs dropped for a fourth year, the longest slump since 2000, the United Nations’ Food & Agriculture Organization said in a report Thursday. Ample supplies of wheat to soybeans to milk, a strong dollar and tepid demand from some emerging-market buyers meant that the average price of 73 food items in 2015 fell by almost a fifth year-on-year.

Lower food costs are a predicament for central banks in Europe and the U.S. that have failed to meet inflationtargets at or near 2 percent. The U.S. has missed its goal for more than three years as slumping oil and commodities and a stronger dollar kept a lid on prices. At the same time, that’s given cash-strapped buyers more disposable income to spend on other goods and services. In the euro area, consumer confidence last month was the highest since 2011.

“Food prices are one of the elements of central banks’ inflation calculations, and obviously the fall in the broader commodity complex, energy prices and industrial metals, has been a factor as well in low inflation rates,” Hamish Smith, a commodities economist at Capital Economics Ltd., said by phone from London. “But from a consumer perspective, falling food prices are beneficial.”

While importing countries will see some benefits from lower prices, weaker currencies have diminished purchasing power in some emerging nations, Smith said. The global food-import bill was estimated at a five-year low of $1.09 trillion in 2015, according to a UN report in October.

The FAO’s food gauge fell about 1 percent to 154.1 in December, the lowest since April 2009. Prices declined last month for everything except sugar and vegetable oils. Global inventories of corn, soybeans and wheat will all climb to record highs this season after bumper harvests around the world, U.S. Department of Agriculture data show.

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