What would happen if global food prices surged 20 per cent for a prolonged period of time?
A "food price misery index" produced by UBS shows emerging markets like Turkey, Brazil and India would see the largest degree of misery from a sustained increase in food prices. Richer countries – Switzerland, Canada and the U.K. – would see the smallest degree of pain.
"If soaring food prices are not reversed, emerging economies would suffer most," it said.
The report comes after the World Bank said this week its food price index surged 29 per cent in the past year, nearing its 2008 peak. The United Nations says its food price index has surpassed 2008 levels.
Much of the run-up in food prices has stemmed from "supply shocks" such as weather-related disruptions to harvests, the bank figures.
It ran some simulations on what would happen to the world if food prices rose 20 per cent over a sustained period. It found global economic growth would fall 0.3 per cent below its baseline forecast for this year. And global inflation would be 0.4 per cent higher.
Its food misery index tracks the impact on GDP, inflation and interest rates of a sustained shock from global food prices over two years.
Food tends to account for a greater share of the consumer price index in emerging markets, where households are more vulnerable to rising food costs because more of their budgets go towards basic necessities. That means emerging markets would have to respond more forcefully to curb rising food inflation -- by hiking interest rates, which, combined with a drop in purchasing power would result in a larger hit to economic growth.
Canada would not suffer as greatly. However, even within the country, food inflation doesn't hit all income groups equally. Past studies have shown low-income households are more exposed to rising food prices because that tends to eat up more of their spending.
Tavia Grant