Standard Chartered’s Ethan Lester and Madhur Jha analyse how higher Oil prices can quickly lift global food inflation via fertiliser costs and trade bottlenecks. They note that food’s share in CPI baskets, import intensity and dietary patterns will shape country outcomes. They see upside risks to food CPI inflation, especially where fertiliser affordability is already strained.

Oil, fertiliser and global food CPI

"Higher oil prices often feed through to food prices quickly via rising fertiliser costs; global trade in fertilisers has an outsized exposure to the Strait of Hormuz versus other producer inputs."

"Since the US/Israel-Iran war started, governments have refrained from implementing new market interventions to directly contain food CPI inflation, as price increases in natural gas (which is more important for fertiliser production than oil) have historically been more transitory than global oil-price spikes, and because governments maintain sizeable structural commitments to the agriculture sector."

"But fertiliser affordability was already under strain due to recent protectionist measures by major trading economies – notably China and the EU – suggesting upside risks to food CPI inflation even before energy prices started rising."

"Global food and headline CPI inflation cycles tend to correlate strongly, and the IMF estimates that a 10% increase in oil prices over the course of a year could raise global inflation by around 40bps."

"Consumer psychology will likely drive large variations in food CPI inflation across economies, given extensive evidence that people pay special attention to the prices of goods they purchase regularly."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)