Wheat it

- "The rise in wheat prices in the last few weeks has raised concerns about renewed upward pressure on European inflation. In 2007-08, strong food price inflation, accompanied by sharp increases in energy prices, pushed euro area and UK inflation rates to extremely high levels. That high inflation almost certainly kept monetary policy tighter than it otherwise would have been and the pressure it put on real incomes probably contributed to the slide into recession."
- "So is there a risk this happens again? At present, we think that’s unlikely. The rise in wheat and soft commodity prices in the last few weeks is significant, but so far it is not as large, or as broad-based, as the rise seen in 2007-08. So, for now, the rise in wheat prices isn’t enough to suggest food price inflation rates of close to 10% as we saw then."
- "That said, in the past year or so food price inflation has subsided to very low levels in the euro area and is currently close to zero. It has also fallen in the UK and is currently running at around 2%. Some upwards drift in food price inflation from these levels was to be expected in the coming year, and the rise in wheat prices makes that even more likely."
- "Following on from the analysis done by our Emerging Market colleagues, we take a look at the potential impact of the rise in wheat prices on inflation in Europe. A modest rise in food price inflation – by around two percentage points or so – may well be on the cards. With a weight of roughly 10% in the CPI in the euro area and the UK, that could have a small but noticeable effect on headline inflation. We’ve raised our inflation forecasts accordingly. But, given its starting point and the behaviour of other components of inflation, such a rise may prove to be more problematic for the UK than for the euro area."

CreditSuisse European Economics 20100812

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