Chart: global corn price and China pork price2 August, 2012, 16:05. Posted by Zarathustra
The recent surge in global food prices triggered by the drought in US has certainly raised some questions on whether it could trigger another round of food inflation, particularly in the emerging markets.
As for China, Barclays was relatively optimistic, suggesting that China can probably be better at coping with that than in the past.
Société Générale, however, brought up the following chart last week. This is the year-on-year changes of global corn price and pork price in the CPI. According to Société Générale, almost 90% of the variation in Chinese pork prices can be explained by the variation of corn price with one quarter lag and soybean price by two quarters lag. Also, the ratio between pork price and corn price has moved below break-even, suggesting some inflationary pressure in China’s food prices.
Source: Société Générale
This will likely push up inflation modestly towards the end of this year should the prices of agricultural commodities remain elevated for longer. If that does happen, it could be an unwelcome situation, especially if economic growth does not recover as the market is hoping for in the second half.