Food prices and the UK economy

There is a timely report from Ernst and Young ITEM club on the likely macroeconomic impact of rampant food price inflation on the UK. Brief details below together with a link to the report.

Inflation:
Food and non-alcoholic beverages account for only 11% of the CPI basket, the sharp acceleration in food price inflation to 6.6% over the last year is
adding to the recessionary forces threatening the economy.

Balance of Payments
The UK is more exposed to rising world food prices than its peers – it runs a trade deficit in food equal to 1% of GDP, whereas the US is in balance and France runs a surplus

Input costs and profit margins:
Food is a major input into many industries - Input costs climbed 23.3% over the year to April yet, with consumers’ disposable incomes falling, output prices rose just 7.5% as companies continued to squeeze margins

Real incomes of consumers:
Consumers, particularly the less well-off, will also face some tough choices. Will the price point soon be reached for organic and fair-trade products that puts such purchases beyond the reach of all but the comfortably well-off?

Monetary policy risks
The danger now is that rising world prices will lead to excessively tight monetary policy, as the Bank of England tries to counter the impact of higher food and energy prices

ITEM support a change of inflation target to ‘core CPI’ which excludes the effect of food and energy prices

The ITEM report can be downloaded as a pdf file by clicking this link

Unit 2 Macro: Evaluation on Supply-Side Policies [21 May 2012]
Unit 2 Macro: Migration and the UK Economy [20 May 2012]
Unit 2 Macro: Measuring Inflation in the UK [20 May 2012]
Unit 2 Macro: Real Interest Rates [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Unit 1 Micro: Income Elasticity of Demand [13 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 3 Micro: The Dawn of a Shareholder Spring? [8 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Aggregate Demand Glossary [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 3 Micro: Evaluation Question on Supermarkets [11 Apr 2012]
Unit 2 Macro: Inflation and the Business Environment [6 Apr 2012]
Unit 2 Macro: Revision on Real Economic Data [2 Apr 2012]
Unit 2 Macro: Revision on Real Disposable Income [2 Apr 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Unit 4 Macro: Video Resources on the Euro Crisis [10 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 2 Macro: Might Oil Prices Bring another Recession? [4 Mar 2012]
Economies hooked on central bank stimulants? [4 Mar 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Unit 2 Macro: Signs of Progress for Zimbabwe [29 Jan 2012]
Unit 2 Macro: Focus on China - Inflation [26 Jan 2012]
Unit 4 Macro: Focus on India - Supply Side Issues [25 Jan 2012]
Inflation - what’s up, what’s down and what’s going to happen next [17 Jan 2012]
Economics at the Movies - Foods that Make Billions [15 Jan 2012]
China’s newest 5 year plan - and how it could change the world! [12 Jan 2012]
Unit 2 Macro: Quantitative Easing in the UK [8 Jan 2012]
Rising prices and falling real incomes [13 Dec 2011]
Unit 3 Micro: Tacit Collusion in the Supermarket [27 Nov 2011]
Beyond the Bike - The Value of Money [19 Nov 2011]
Behavioural Economics: Bittersweet Symphony - The Psychology of Food [8 Nov 2011]
Unit 3 Micro: Unilever hit by rising costs [6 Nov 2011]
Australia lowers interest rate to 4.5% [1 Nov 2011]
Unit 1 Micro: Economists attack food price speculation [24 Oct 2011]
Unit 4 Macro: World Food Day [16 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Unit 4 Macro: Unit Labour Costs and Inflation [12 Oct 2011]
Unit 4 Macro: UK Inflation Charts [12 Oct 2011]
University Challenged [11 Oct 2011]
Fat tax: Denmark [5 Oct 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Inflation in India [18 Sep 2011]
Unit 2 Macro: Interest Rates and Income Inequality [16 Sep 2011]
Study Note - Macroeconomic policy objectives [16 Sep 2011]
Unit 2 Macro: Value Added in Production and GDP [11 Sep 2011]
Monetary Policy Roundtable [25 Jul 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
The Future of Food Retailing? Tesco in South Korea [27 Jun 2011]
AS Micro: Fears over a century of hunger [22 Jun 2011]
Poor Economics - Esther Duflo at the LSE [3 Jun 2011]
AS Macro Key Term: Supply-Side Policies [25 May 2011]
AQA Macro: Remember to revise inflation [25 May 2011]
AS Macro Key Term: Demand Pull Inflation [24 May 2011]
AS Macro Key Term: Deflation [24 May 2011]
AS Macro Key Term: Cost Push Inflation [24 May 2011]
AS Macro Key Term: Inflation [24 May 2011]
Unit 1 Micro: Tackling Obesity - Alternative Approaches [15 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
AS Micro: Rising Global Food Prices [2 May 2011]
Video Clips on the Chinese Economy [1 May 2011]
AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
AS Micro: Mock Exam Question on Sugar Prices [28 Apr 2011]
AS Micro: Importance of Elasticity of Supply [23 Apr 2011]
UK Economy at a Glance April 2011 [17 Apr 2011]
China set to become exporter of inflation [14 Apr 2011]
In Praise of Farmers and Farming [13 Apr 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
AS Macro Key Term: Real Disposable Income [11 Apr 2011]
AS Macro Key Term: Monetary Policy Tightening [11 Apr 2011]
UK Minimum Wage rises by 2.5% in October 2011 [8 Apr 2011]
RES Essay Competition - Obesity and a Fat Tax [7 Apr 2011]
ECB breaks rank and raises interest rates [7 Apr 2011]
AS Macro Key Term: Fiscal Austerity [6 Apr 2011]
AS Macro Key Term: Aggregate Supply Shock [6 Apr 2011]
AS Macro Key Term: Inflationary Pressure [5 Apr 2011]
AS Macro Key Term: Bubble [4 Apr 2011]
AS Macro Key Term: Relative deflation [2 Apr 2011]
AS Micro Revision: Banana Prices [1 Apr 2011]
OCR F585 June 2011: Data Charts [30 Mar 2011]
Keeping Track of UK Macro Objectives [18 Mar 2011]
Focus on Spain [16 Mar 2011]
the latest data from the MPC [8 Mar 2011]
Worst Cases of Hyperinflation [16 Feb 2011]
Combining monetary and fiscal policy to curb inflation in China [16 Feb 2011]
Inflation Stats - Look no Further! [14 Feb 2011]
The US-China Trade Deficit [14 Feb 2011]
Economics Q&A: Should the CAP be scrapped? [14 Feb 2011]
Economics Q&A: What factors help to explain rising food prices? [14 Feb 2011]

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