Monday, February 21, 2011

Index of vulnerability to rising food prices high for emerging markets


Citigroup has develop a index of vulnerability to rising food prices which looks at the weight of food in the CPI index, a measure industrial capacity utilization and monetary looseness to measure the impact of food inflation on an economy. A high food component will mean that food will always be important to inflation. High capacity utilization means there is no output gap which means that higher food inflation can be translated into higher overall prices. Loose monetary policy always help to allow prices to move higher as buying increases from excess money.

China happens to top the list and provides ample reason for monetary tightening. Places like Russia and South Africa do not seem to have the same problems with food price increases.

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