Lagging effect of falling food prices
Published:Friday | October 21, 2011 | 12:00 AM
The report that the food price index of the Food and Agriculture Organisation (FAO) fell in September for the third consecutive month as oil prices were also declining is encouraging news, especially for poor people in developing countries who have been hit by rising cost of living in the last year.
This carries some political significance, particularly as it is now established that escalating food prices, which reached a peak in February, were among the pressures that fuelled the uprising in Tunisia and Egypt earlier in the year.
According to the FAO, their index fell by two per cent in September from the August level, reflecting declines in most commodity prices.
All five food categories monitored by the FAO, cereal, oils/fats, dairy, meat, sugar, recorded downward price movements due variously to improved supply conditions as, in the case of cereal production, currency movements and policy changes that affected the rice market. Additionally, the slowdown in the world economy and heightened expectations of a double-dip recession also served to lower demand, and put downward pressure on food prices.
It should be noted, however, that the food index which stood at an average of 225 points in September, 13 points below the peak February level of 238 points, is still significantly above the September 2010 level of 195 points.
From a Jamaican standpoint, the decreases in the sub-prices indices for cereal, oils/fats, and dairy are most significant, given our heavy reliance on these imports.
The cereal category, which is especially relevant to Jamaica, experienced the second largest decline - three per cent - while oils/fats went down by 2.5 per cent, and dairy only marginally.
The sugar price subindex dropped by 3.8 per cent from the August level, which should be of some interest, based on our supply arrangements for the domestic market, which is backed by imports.
Contrasts with FAO price index
The decrease in the FAO's food price index contrasts with the uptick in the local monthly inflation rate for September, which STatin reported at 0.8 per cent. This was higher than the August figure of 0.6 per cent, and moved the year-to-date inflation rate to 4.6 per cent, which represents an accelerated rate from the first half of the year. The food subcategory went up by 0.9 per cent - moderately above the overall rate - for September.
The big pressure on the inflation rate came from the 'education' category, which recorded an increase of eight per cent which of course coincided with the back-to-school expenditure on tuition, books, etc, that take place at this time of year.
Statin, in its news release, attributed the increase to the rise in tuition fees for the new school term. In the transport category, there was negative movement of 0.5 per cent reflecting reduced prices for petrol which we have seen at the pumps, in line with falling oil prices.
With oil prices falling and likely to slip further as the reported capture and killing of Moammar Gaddafi Thursday may remove some uncertainty about oil supplies, Jamaican consumers could continue to get some measure of relief at gas pumps and in their electricity bills.
The acceleration in the inflation rate may, however, continue for the remaining months of the year because of the seasonal rise in the prices of domestic food crops.
Prices for some vegetables and ground provisions at Coronation Market were already moving up between mid-September and early October, and usually peak at Christmas time.
For example, cooking and salad tomatoes jumped by almost 30 and 50 per cent, respectively, in the period, and other items like cabbage, carrot, sweet pepper and lettuce have also jumped.
Even as we have been spared hurricane-related disruptions in food production, Jamaica, it seems, is still not able to achieve stability in food prices so as to bring inflation down to low single-digit levels - a requirement for sustaining low interest rates.