Economists worry that the sudden increase in the cost of such a basic good as food will fuel inflation. James paulsen, chief investment strategist at US financial advisor Wells Capital Management, says the rise in non-energy commodity prices could presage an increase in core consumer inflation later this year.
Meanwhile, humanitarian agencies are worried that a sustained rise in prices will make it more difficult to feed people in the poorest countries. Greg Barrow, spokesman for the UN’s World Food Programme, says rising demand for raw materials, as well as a weaker US dollar and higher transportation costs, are making its food purchases more expensive. Asustained rise in food prices would mean the agency would either have to ask donors for more money or cut back on aid for the 90m people it feeds, he adds.
Stock analysts have begun to downgrade the share prices of food companies, which they believe will have trouble ([in]) passing on the rising costs of raw materials to consumers. Deutsche Bank last week lowered its equity ratings on Unilever, Danone and Nestle, citing concerns over the impact of price increases on the companies’ future profit margins, while Morgan Stanley similarly lowered its ratings on Numico.
Nestle, the Swiss food group, last month announced that not only was it facing higher costs for grains, corn and green coffee, but that the price of milk ( its biggest single raw material cost) was “going up like a rocket”.