Food crisis fuelling inflation: IMF
Saturday, 21 June 2008
WASHINGTON, June 20 (Reuters): Higher oil and food prices have sharply increased inflation, balance of payments (BoP) and budget pressures in many emerging and developing countries, a senior International Monetary Fund official said on Thursday.
In a speech to the Panama Chamber of Commerce, Mark Plant, deputy director of the IMF's policy, development and review department, said the combined rise in oil and food prices are posing serious economic and political problems.
Asia, the former Soviet Union, southern Africa and Latin America have been hardest hit, he said.
Plant said the rise in the price of cereals and oil have contributed about 3 percentage points to headline inflation. In addition, in some countries domestic demand pressures have pushed up inflation.
"These impacts will need to be managed in each country, to ensure that the shocks do not become entrenched as generalised inflation, chronic shortages of foreign exchange, or chronic budget deficits," Plant said in an embargoed text of his speech.
"The key objective should be to preserve the gains made over the past few decades in establishing sound macroeconomic environments for growth."
Still, Plant cautioned that steps to ease the effects of rising prices also come with a fiscal cost -- either by cutting into revenues by reducing taxes and tariffs, or by increasing expenditures to protect the poor or support small farmers.
In the long term, the price shocks will eventually need to be fully passed on to consumers and producers, he said, also warning governments to avoid blanket wage increases that would cause inflation to rise further.
In a speech to the Panama Chamber of Commerce, Mark Plant, deputy director of the IMF's policy, development and review department, said the combined rise in oil and food prices are posing serious economic and political problems.
Asia, the former Soviet Union, southern Africa and Latin America have been hardest hit, he said.
Plant said the rise in the price of cereals and oil have contributed about 3 percentage points to headline inflation. In addition, in some countries domestic demand pressures have pushed up inflation.
"These impacts will need to be managed in each country, to ensure that the shocks do not become entrenched as generalised inflation, chronic shortages of foreign exchange, or chronic budget deficits," Plant said in an embargoed text of his speech.
"The key objective should be to preserve the gains made over the past few decades in establishing sound macroeconomic environments for growth."
Still, Plant cautioned that steps to ease the effects of rising prices also come with a fiscal cost -- either by cutting into revenues by reducing taxes and tariffs, or by increasing expenditures to protect the poor or support small farmers.
In the long term, the price shocks will eventually need to be fully passed on to consumers and producers, he said, also warning governments to avoid blanket wage increases that would cause inflation to rise further.