The US consumer is, for now, buoyed by high savings and a strong job market, and, appears poised to withstand higher food prices without having to adjust spending significantly. In the euro area, the energy/gas story is still a bigger theme, especially with Russia gas supply risks; if energy and food price inflation remains high, the squeeze on disposable income would increase the likelihood of a more than technical recession.
The effect on EM economies is likely more heterogeneous, and also potentially more devastating. There are major differences in how food price shocks feed through various parts of EM, as it is not only a big consumer and importer of food, but also a large producer and exporter. While higher food prices are a challenge for emerging markets, high food prices are not all negative for everyone: they imply a positive terms-of-trade shock for food-exporting economies, which tend to feature in LatAm and some economies in Asia. Beyond the dollars and cents, however, the global rise in food prices has come at a terrible cost to the world’s poor. The weight of food in the consumption basket in EM countries tends to be much higher than DM, and this leaves the consumer much more vulnerable to higher prices, if not food security. The danger is that populations suffering from high food prices and shortages of supplies can be a tinderbox for political instability, as history well suggests. Thus, while the negative growth effect will be felt more in EM, the main concern is a repeat of the 2011 so-called Arab spring, but on a wider scale of unrest. Therefore, countries with significant increases in food inflation and high inequality may be particularly vulnerable. - Barclays
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