Food Inflation Risks Loom as Markets Eye US Demand, Japan GDP
Global markets are facing potential food inflation risks as they enter the second half of August. The usual summer lull may conceal pressure from rising food costs, energy prices, and shifting interest rate expectations worldwide.
A powerful El Niño, higher energy prices, fertilizer shortages due to the Middle East conflict, and problems with grain exports caused by the war in Ukraine are contributing to concerns about another wave of food inflation. Households in Asia and Latin America may be most affected as they spend a larger share of their income on food.
The UN Food and Agriculture Organization has warned of the risk of another global increase in food prices, which could add around 0.7% to global food inflation if a strong El Niño peaks. Central banks will need to reconsider their monetary policy plans if price pressure proves not to be short-lived.
Investors are also keeping an eye on the state of U.S. consumer demand, with retailers' reports from Walmart, Home Depot, Target, Lowe's, and Deere expected to reveal how resilient American spending remains. The conflict involving Iran, higher fuel costs, and geopolitical uncertainty may be affecting household budgets.
Japan's GDP data will also be closely watched, with the country facing a double burden due to the war in the Middle East: paying more for imported oil while dealing with a weakening national currency. Markets are increasingly confident that the Bank of Japan will raise its policy rate by 25 basis points next month.
Gold has regained ground after losing 25% of its value over three months, and investors have begun putting money into gold through exchange-traded funds once again. Central banks bought a record 289 metric tons of gold in April-June.