Chips, beer off the grocery list as inflation bites

Wed Feb 20, 2008 12:42pm EST
 
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By Emily Kaiser - Analysis

WASHINGTON (Reuters) - Steep food and fuel prices that are taxing global consumers and handcuffing recession-wary central bankers threaten to seep deeper into export channels, triggering a worrisome second round of global inflation pain.

The symptoms of price pressure are easy to spot. In Japan, shoppers are cutting back on potato chips and beer. More Americans are forgoing luxuries such as dining out at steak restaurants. In China, the price of pork is up nearly 60 percent. Europe's retail sales have slowed.

The causes are also clear. Oil prices topped $100 a barrel on Tuesday. Grains and other commodities are setting record highs, powered by demand for biofuels and from fast-growing economies including China and India.

The U.S. consumer price index for January was up 4.3 percent from a year earlier, slightly higher than economists had expected. China's consumer inflation rate jumped to 7.1 percent last month, an 11-year high.

"With grains prices soaring, energy costs high, and iron ore set to jump after Brazil's Vale increased prices by 65 percent over 2007, there appears no relief on the horizon for the Chinese people on food, gasoline or durable goods like refrigerators," said Andrew Busch, global foreign exchange strategist with BMO Capital Markets in Chicago.

Globalization closely ties world markets. Soaring Chinese pork prices not only make meals costlier in China, but they could lead to demands for higher wages that eventually translate into rising prices for exported toys, clothing, furniture, electronics and countless other items.

Wednesday's U.S. inflation report showed strong price increases on a distressingly wide range of products, including the usual culprits of food and fuel as well as apparel, prescription drugs and tobacco.

Global food prices in particular will probably remain high as emerging markets move up the food ladder, demanding more meat -- and the grains to feed the livestock. The Reuters/Jefferies CRB Index of commodity prices hit a record high for a fourth straight session on Wednesday.   Continued...

 
<p>Beer drinkers in a file photo. Steep food and fuel prices that are taxing global consumers and handcuffing recession-wary central bankers threaten to seep deeper into export channels, triggering a worrisome second round of global inflation pain. REUTERS/Christian Charisius</p>