Wheat Price Increase Could Affect Inflation

Wheat prices increased when Russia banned exports out of the country.

Wheat prices increased when Russia banned exports out of the country.

Analysts believe that increasing wheat prices will affect inflation levels.  The July agricultural market data is due to be released this week.  It will be interesting to see how analysts conflict on their reading of the data as some see a major impact to the global prices while others do not see it having an impact until next year.  Due to banned exports by major wheat exporter Russia, wheat prices rose close to 50 per cent.

Russia has been experiencing unusually warm weather and the worst drought in over 50 years.  Wildfires, now under control, were spreading and breaking out rapidly across the country a few weeks ago.  The result of all the problems was a loss of almost one fourth of the country’s grain crops.  This led Russia to an export ban to be in effect for the rest of the year.

While this led to a rise in the cost of wheat, and other grains rose slightly, the major impact was on wheat.  While it isn’t anywhere near the level of the 2007-2008 food crisis, the increase in prices will affect those whose food costs make up a large part of their spending budgets, such as those in Indonesia, Russia, Turkey, and China.

Economists with Credit Suisse have forecasted that the increase to food prices will add 0.3 per cent to the Eurozone inflation and 0.2 per cent to UK inflation in the next year.

The surge in wheat prices may not cause higher interest rates even if it increases inflation according to economists with HSBC.

World wide, other agricultural crops have been affected by the mudslides and flooding in China, flooding in Pakistan, and extreme high heat in parts of the US.

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