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IHS Markit's unique global sector PMI data showed average prices
charged by food producers to have risen at a rate unprecedented in
over a decade in January, as supply shortages pushed up producers'
costs.
Rising food prices are important, as not only does food comprise
a major proportion of consumer price inflation baskets, but rising
food costs are politically undesirable, not only being highly
visible but also hitting the poorest hardest.
IHS Markit's global sector PMI data cover every major developed
and emerging economy, based on monthly questionnaires completed by
a panel of over 30,000 companies in over 40 countries. The survey
data are best known for providing the first indications of national
economic trends, but also provide unique insights in detailed
sectors of the global and regional economies.
The PMI survey data collected from food producers showed prices
charged rising at a rate unsurpassed since comparable data were
first available in late-2009. The Global Food Producer PMI Prices
Charged Index rose to 63.6 in January, up from 62.5 in December and
equaling the prior survey high recorded back in 2011. With any
index reading above 50 signalling a rise in prices compared to the
prior month, the index points to a surging rate of food price
inflation.
Rising costs
The survey data have signalled a steep increase in food price
inflation since a slight fall was recorded in May 2020, which had
been linked to falling commodity prices as demand slumped amid the
initial pandemic lockdowns. Since then, however, producers' raw
material input costs have risen at an accelerating rate almost
continually during the pandemic, which has forced food
manufacturers to pass these costs on to customers in the form of
higher prices.
Although January saw a slight easing in the rate of food
producers input cost inflation, it was still the second-sharpest
rise in a decade after December's all-time high.
Record supply shortages
A key driver of these higher costs has been the worsening supply
chain situation during the pandemic. In a sign that the recent
steep rise in food price inflation may not yet have peaked even at
the current decade-high, these food supply shortages worsened
further in January. As measured by the PMI's suppliers' delivery
times index, the incidence of supply chain delays in the food
sector rose to an unprecedented high in January, greatly surpassing
anything seen prior to the pandemic.
Risks to the outlook
The prospect of global food prices continuing to rise sharply in
coming months poses several important threats to the economic and
political outlook.
In the first instance, food prices form a significant proportion
of consumer price inflation (CPI) baskets in all countries, and as
such any continued surge in food price inflation is likely to
contribute to elevated CPI readings in coming months. These
elevated readings will in turn exert increased pressure on central
banks to tighten monetary policy.
A consequence of higher food inflation is that the toll falls
more heavily on low income households than wealthier consumers, as
food forms a relatively larger proportion of poorer families' total
spending bills. Hence governments are especially concerned by the
destabilising political impact that rising food prices can have.
Alongside surging energy prices, which likewise hit the poorest
hardest, the record increase in food prices poses a potential
threat to stability in many countries of a nature not seen for many
years.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
