A United Nation report has said that food prices has increased in 2007 on average by 13 % .The explanation for this situation is strongly connected to higher demand from Asia emerging economies, but also due to higher amount of these food used to produce alternative energy resources.
Quite on the contrary with the oil prices increases which led to a substitution away form oil toward cheaper energy sources, food are not possible to substitute as part of the nutrition component. The alternative would be, a kind of a heavily criticized transgenic food (genetically manipulated food) . Leaving aside the controversy surrounding this kind of food, this alternative would prevent to have higher inflationary pressures for some time in the future .This the typical cruel ethical dilemma which might arise in the global economy. -
The current problem is different. .After all global economy means lower inflation ,as much as the global supply grows faster than demand. Transportation and communication cost has decreased sharply since the nineties, because of the bigger business scale concerning to global markets. But, to what extent food price increase can have a strong impact on global inflation ?
This an old discussion between inflationary experts and researchers; concerning the difference between cost pressures ( price shocks) and demand pressures as a cause of inflation. The main stream of analysis, consider that any cost increase pressures can be counterbalanced by other relative cost decrease forces .In other word ,inflation arises from demand increase pressures, which imply all prices increases in some period of time at a persistent rate. .In this case food prices increases, would be counterbalanced for instance, by transport and communication cost decreases keeping global inflationary pressures stable. In fact inflation in US is decreasing, and it is in check in Japan and the Euro zone economies . Actually , effective GDP and potential GDP gap in industrialized economies, is decreasing which means more stable inflation behaviour in coming months .
Therefore, inflation would still be a matter of Central Banks ability to keep inflationary expectations and demand pressures, in check with the macroeconomic fundamentals.(potential GDP). It therefore means, the ability to make the proper balance between growth (employment) and price stability. If there is any relaxing on monetary policy adjustment curse to get price stability, food prices increases might indeed become relevant because of its dynamics of a faster pace rate of price increases than other goods prices .-