Everyone is talking about how the spike in oil prices will derail the global economy. But economists now say the bigger threat is food prices. Which, when you think about it, makes sense. Everyone has to eat.
According to Reuters, if food costs start eating into developing economy growth rates, the rich world will have to take notice. Oil will continue to flow but food prices are expected to remain elevated for some time, which puts more pressure on household budgets. Food costs will create bigger and more permanent inflationary pressures than oil.
The problem, says the International Monetary Fund, is that food prices will remain high. It's not just being caused by weather events but also by structural changes in the global economy with more urbanization and rising middle class. The more affluent people are, the more they eat. Diets vastly improve with wealth as people spend more, eating more meat and far more calories. The problem is that without a leap forward in agricultural production, there simply isn't enough farmland to keep up with demand.
According to the IMF, the world needs to get ready for higher food prices. And if that's the case, it will impede global recovery by limiting people's spending. Don't expect the global economy to recover any time soon.
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