May 2, 2011
IDB releases study about potential impact of rising food prices on Latin America and the Caribbean
Study highlights need to protect urban poor against food inflation and warns of the effects of exchange rate appreciation
Rising international food prices could trigger an acceleration of inflation in several countries in Latin America and the Caribbean this year, highlighting the need for policies to protect the urban poor, according to a new study by Inter-American Development Bank (IDB).
Net food importers with a greater share of spending concentrated on tradable foodstuffs and with little room to let their currency appreciate will be the hardest hit by higher international food prices, according to the study. The urban poor that do not have access to any enhanced income from self-grown products are most at risk from the food price shock.
“There is a need to increase and improve targeting of aid, perhaps through reformed conditional cash transfer schemes, to these groups to compensate the effect of the food price surge,” according to the Policy Note published by the IDB’s Research Department. “How will the food price shock affect inflation in Latin America and the Caribbean.”
Flexible exchange rates in other countries tend to offset the impact on domestic prices but this raises other concerns. A significant nominal appreciation may affect the competitiveness of other tradeable sectors. The challenge for net commodity exporters is to harness the current windfall and ensure that the economy remains competitive.
The report estimates the potential inflationary impact of higher international food and oil prices for 13 countries in the region and discusses policies that can be used to alleviate the impact of higher food prices on inflation. The study concludes that rising oil prices will only significantly affect inflation in a small number of countries in the region this year.