Central banks and development agencies alike are sounding the alarm over sustained upward pressure on global food and fuel prices as IMF and World Bank governors gather for the annual meetings. Former IMF first deputy managing director Stanley Fischer, now governor of the Bank of Israel, told Emerging Markets that a prolonged rise in commodity prices could raise dilemmas for monetary policy.
“If you are convinced that it is a short-term price change, then you just talk about it and let it go through into the price level. But you really want to avoid it going beyond a one-time jump.” Fischer cast doubt on the possibility of central banks stripping out volatile prices for policy-making purposes, by targeting core inflation instead.
Israel has a strong exchange-rate pass-through – so if that, as well as food and fuel, were removed from the index, “we wouldn’t be left with very much,” said Fischer. He added that many contracts in the economy were indexed to headline inflation. In China, food prices are rising almost 20% year-on-year. Lars Thunell, CEO of the IFC, told Emerging Markets that rural areas in western China, and indeed across middle-income emerging markets, were set to become a particular focus for development lending.
“We are building up our efforts in agriculture, especially the supply chain and land economy, which will be even more important now that the rise in food prices is going on for so long,” Thunell said.
In Russia, consumer prices rose by 0.8% in September, and by 0.5% in the first week of October alone – a jump described as “unusually large” by Central Bank governor Sergei Ignatiev. The leaps in price were panicking consumers in some regions: in Krasnodar, southern Russia, the price of milk and eggs rose by 25% and 40% respectively, in September. Authorities in nine regions froze prices on basic consumer items, and markets were watching the monopolies commission to see if it would challenge such measures.
Hans-Joerg Rudloff, chairman of Barclays Capital, told Emerging Markets in an interview that this year has brought “clear signs of an overheating global economy with all the accompanying shortages, of capital, natural resources, capital goods, food and human resources, not to mention insufficient infrastructure.”
And Egypt’s finance minister Youssef Boutros-Ghali yesterday added his voice to the discussion, calling in Emerging Markets for the subject of inflation and its impact on emerging markets to be high on the agenda at the annual meetings.