With food inflation being reported as one of the factors that contributed to the recent unrest in Egypt and elsewhere, a U.N. economist said this month that high prices are likely to continue.
Food prices are higher than they have been since the Food and Agricultural Organization of the United Nations (FAO) began tracking them in 1990, according to the agency’s recently released food price index. This marks the seventh straight month the index has increased.
“The new figures clearly show that the upward pressure on world food prices is not abating. These high prices are likely to persist in the months to come,” said FAO economist Abdolreza Abbassian in a press release.
As reported by the Associated Press, climbing food prices are one of the factors that contributed to the widely covered protests in Egypt, Algeria and elsewhere.
According to economics professor Robert Schwab, there have been two predominant explanations for the steep rises in recent months. One, he says, is that there is nothing unusual about the recent inflation of food prices, and that it is just the logical result of “too many dollars chasing too few goods.” The other is less optimistic.
“The alternative explanation points to idiosyncratic shocks to the food market, as well as increased global demand,” Schwab said. Shocks in economics terms are merely drastic changes in a market, for example the recent flooding that has affected a large number of crops in places like Australia. As far as increased global demand, Schwab says that is likely due to recovery from the recent global recession.
One possible measure suggested by the FAO to curb skyrocketing food prices has been to put more restrictions on speculation, which occurs when entities make contractual agreements based on where prices are projected to be. However, the agency admits that any regulation would have to be careful not to stop speculation altogether.
Schwab agrees, pointing out that “speculation can be very valuable.” Schwab says speculation can be particularly useful in food markets, where it can provide insurance for farmers who have to grow crops with no certainty about where prices will be when it comes time to harvest.