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World food prices rise to record on sugar, meat costs
'A lORLD food I'rices rose
YY to a record m December on higher sugar and meat costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt. An index of 55 food commodities maintained by the Food and Agriculture Organisation (FAO)
climbed for a sixth month to 214.7 points, above the previous all-time high of 2135 set in June 2008, according to a monthly report posted on the Romebased UN agency's website yesterday. The gau~es for sugar and meat pnces advanced to records. Sugar climbed for a third year in a row in 2010, and
A sugar market
com jumped the most in four years in Chicago. Food prices may gain further unless global grain production rises "significantly" In 2011, the FAO said November 17. At least 13 people 'died last year in
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Mozambique in protests against planned increases in bread and water prices. "!bere Is still, unfortunately, the potential for grain prices to strengthen on the back of a lot 01 uncertainty; Abdolreza Jmw
u.s. Fed May sustain stimulus over unemployment rate
DDERAL Reserve officials CSignaled they'll probably push ahead with unprecedented stimulus until the recovery strengthens and many of the 15 million unem· ployed Amelicans find work. The jobless rate hasn't fallen below 9.4 per cent since May 2009 and Will probably average that figure this year, according to a Bloomberg News survey of economists. Unemployment probably declined to 9.7 per cent last month from 9.8 per cent In November, according to the average estimate of a Bloomberg poll prior to a Labor Department employ· ment report on January 7. While growth has picked up since the Fed announced plans on November3 to buy $600 billion of bonds, policy makers remain focused on their failure to achieve their goals of fun employment and an inflation rate of about two per cent, according to the minutes of their December14 meeting released yesterday. The recovery's pace is likely to "remain mOdest, WIth unemployment and inflation devi· ating from the committee's objectives for some time; the minutes said. "Right now it looks like the unemployment rate is the whole ball of wax," said ward McCarthy, chief financial economist at Jefferies & Co. in New York. 'The majority just wants to keep going full throttle, andl<eep pvlicy as accommodative as possible." The Fed's decision to embark on a second round of bond purchases in Nove":lber, . known as quantitanve easmg and dubbe!! QE2, sparked some of the bitterest political criticism in three decades. Republican lawmakers and officials in China, Germany and Brazil have said it may weaken the dollar and Ignite Inflation. As stocks rise and the economy shows signs of improving, Chairman Ben S. Bernanke and his colleagues are trying to explain their record easing to investors expecting a pull· back. The Fed cbief defended the central bank's actions in an interview last month on
CBS Corp.'s "60 Minutes" and Janet Yellen, the central bank's vice-chair, is leading a
Bernanke
subcommittee to review com· munication strategy. Us. central bankers, while affirming their commitment to the asset-purchase rrogram. acknOWledged the communications challenges faced in conducting effective policy, Including the need to Clearly convey the commit· tee's views while appropriately airing individual perspectives," the minutes said. Policy makers saw growth quicken since their last meetIng, and "generally agreed that, even with the positive news received over the intermeeting period, the most likely outcome was a gradual pickup in growth WIth slow progress toward maximum eml?loyment." In addition, the 'high level of unemployment was limiting gains in wages and thereby contributIng to the low level of Infla· tion." the minutes said. Since the Fed announced its plans to buy $600 billion of bonds through June, financ· ing terms for companies have eased, US. stocks have climbed, inflation expecta· tions have increased and the dollar has strengthened, gaining 6.2 per cent versus the euro. The Standard & Poor's 500 Index of stocks rose six per cent during the period to close yesterday at 1,270.2 and the extra yield, or spread, investors demand to own high-yield, high-risk securi· ties rather than government debt fell to 5.27 per centage points from 5.92 per centage points on November 3, Bank
of America Merrill Lynch Index data show The improvements in the economy reinforce the Fed's strategy and make it unlikely they'll stop their asset·program before completing their planned $600 billion of purchases, according to Chris Low, chief economist at FIN Financial in New York. "With the economy growing faster, the chances are they think it's from QE and the last thing they'll want to do Is take that fuel away now," Low said. The Fed's oren Market Committee emphasised that the pace and overall size of the purchase program would be contingent on economic and financial developments." according to the minutes. "However, some indicated
that they had a fairly high threshold for making changes to the program; the minutes added 'They're specilically saying they fiave a very high thresh· old for shrinkin~ it," Low said "I don't think we II know until the second quarter" whether they'll want to Increase the asset purchases. Policy makers saw downside risks to growth Including further weakness In the housin~ indus~, the "ongoing detenoration In the finances of US. states and localities, and the potential worsening of the sovereign debt crisis In Europe, the minutes showed. The Fed's quantitative easing program has led Inflation expectations to Increase. Investors expect prices to rise by 23 yearly over the next 10 years, as measured by the spread between nominal and iiif1ation-lndexed lI'easury bonds, compared to expectations of 16 ~r cent when Bernanke Signaled his willingness for a second round of asset purchases In an August 27 speech In Jackson Hole, Wyoming. Most Fed officials said they expected "underlvinK measures of Inflation woUld bottom out around current levels and then move gradually higher as the recovery progresses." The minutes also noted that "several participants saw the risk 01 deflation as having receded somewhat over recent months."
Abbassian, senior economist at the FAO, said by phone yesterday. "If anything goes wrong with the South American crop, there is plenty of room for them to Increase further." The FAO's food-price indicator climbed from 206 points in November. Its gauge for sugar prices reached 398.4 points last month, increasing from 373.4 In November. The meat-price index rose to 142.2 points from 141.5. The a~ency's cereal.price index Jumped to 237.6 points in December, the highest level Since August 2008, from 2233 the previous month. The indicator for cooking oils advanced
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to 263 points, the highest since July 2008, from 2433. The index for dairy prices rose to 208.4 points from 207.8. Global grain output will have to rise at least 2 per cent this year to meet demand m 2011-2012 and avoid further depletion of stocks, the UN agency has said. Concern aliout ary weather in Argentina helped com prices to jump 52 per cent in Chicago last year. The basis for the FAO index is 2002-04. The gauge includes commodity quotations that the agency conSiders representative for international food prices.
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Indonesia keeps interest rate at record low
DANK Indonesia kept its mist at OSK·DMG Group in Dbenchmarklnterest rate at Singapore, said In a research a record low even after connote after the decision. Pressure on inflation is comsumer prices rose at the fastest pace In 20 months, bet- Ing from hlgher commodity ting measures such as higher prices, so the central bank barik reserve requirements doesn't need to respond by will keep Inflation in check. raising rates, Nasution said The central bank maintained yesterday. Policy makers win its reference rate at 6.5 per monitor global oil costs that may push up prices, Deputy cent for a 17th meeting. Thirteen of 15 economists sur· Governor Hartadi Sarwono veyed by Bloomberg News said at the same briefing. had expected the decision, Bank Indonesia "won't hesi· announced In Jakarta yestertate" to raise its benchmark da)t The measure Is at the low- rate if core Inflation exceeds 5 est level since its Introduction per cent, Sarwono said December 22. The current rate In July 2005. is consistent with Indonesia's 'To reduce inflationary pressure, Bank Indonesia and the goal of achieving inflation of government will enhance pol- four per cent to 6 per cent In icy coordination to improve 2011 and 3.5 per cent to 55 per cent in 20U, Deputy Governor the supply side." Governor Darmin Nasution said at a Budi Mulya said last week. press briefing In Jakarta yesConsumer prices rose 6.96 per cent last month from a terday. 'The centia\ bank is year earlier, a report showed still concerned about cap'ital flows. Bank Indonesia will January3, exceeding the 6.71 always review its policy of Iiq. per cent median forecast In a uidity management and caPI- Bloomberg survey of 14 econtal-lnIlows management and omists. Core inflation was 4.28 per cent In December, If needed, we can make adjustments to support the easing from 431 per cent the monetary policy." previous month. . Southeast Asia's largest econIndonesia ordered banks to set aside more cash as omyescaped a recession durreserves to reduce inflationIng the 2009 global slowary pressure In 2010, while down and its expansion has pushed stocks to a record and refraining from Joining Malaysia, Thailand and India lifted the rupiah to a threeyear high. Moody's Investors In boosting borrowing costs. Arate increase would risk lur- Service said last month it's Ing more capital as Europe's placed the nation's Ba2 credit sovereign credit woes and a rating on review for a possible upgrade, citing the nation's U.S. unemployment rate that economic resilience and remains above nine per cent improving debt position. restrain growth In developed The rupiah gained 4.6 per markets, spurring funds to cent in 2010 and reached seek better returns in emerg8,875 a dollar on Novemb~{5,'·· Ing economies. "!be fear of attracting furits strongest level since June ther capital inflows sliould 2007. The Jakarta Composite Index gained 46 per cent last they hike the benchmark ' Interest rates to fight Inflation year, the best performer remains at the center stage; among Asia's 10 biggest stock Enrico Tanuwidjaja, an econo- markets.
Venezuela to raise regulated prices gradually after devaluation , ]ENEZUELA will raise reguY lated prices gradually on items such as milk, rice and corn flour in a bid to avoid an inflationary spike caused by the devaluation ofits cur· rency, said central bank board member Armando Leon. 'The government will not raise prices of regulated food immediately." Leon, 49, said in a phone interview In Caracas. 'The adjustments will be gradual in order to dilute the effect that these increases might have on inflation in the cOming months."
Finance Minister, Jorge Giordani, announced
December 30 that Venezuela would devalue the bolivar for the second time since Januarx 2010. President Hugo Chavez s government eliminated the 2.6 bolivars-perdollar exchange rate on socalled essential goods, Including food and medicine, weakening the rate to 43 bolivars per dollal: The devaluation will add two percentage points to Inflation this year, Leon said, after the central bank said consumer prices rose 26.9 per cent In 2010, the most among 78 economies tracked by Bloomberg. Prices accelerated 5.2 per cent In April 2010 compared with a year earlier
after the government raised price caps on basic foods. Venezuelan public and private companies have sufficient inventories of raw materials to avoid turning to more expensive imports immediately, thereby worsening inflation, Leon said. Leon, one of fiVe central bank directors, said there won't be a further devaluation by weakening the exchange rate for the Sitme, which currently trades at 53 bolivars per dollar. The Sitme was established last year after President Hugo Chavez ordered a crackdown on brokerages and the dismantling of an unregulated currency
market they administered, which is used by Venezuelans to obtain dollars when they can't get permiSSion from the government to buy at the official rate. The central bank can guar· antee enough bonds to supply the Sitme for the first half of 2011 and Venezuela has sufficient International reserves to meet its debt obligations in 2011, Leon said. Nelson QUij'ada, president of the Venezue an·Brazilian Chamber of Commerce and IndustIy. said it would be "impossible" to import goods if the government doesn't raise regulated prices this month.