Could Falling Food Prices Signal End of High Inflation?

Serious young Caucasian farmer or agronomist standing in ripe wheat field beneath center pivot irrigation system and using a tablet at sunset.
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Food prices have been soaring for quite some time, mostly due to inflation and the consequences of the Russia-Ukraine War. However, there seems to be a sign of relief coming.

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In June, the United Nations (UN) Food and Agriculture Organization’s (FAO) index declined 2.3% from May, marking the third consecutive monthly decline. It is still 23.1% above its value a year ago, though.

The drop in June reflected declines in the international prices of vegetable oils, cereals and sugar, while dairy and meat prices increased, the UN FAO reported.

Bloomberg reports that an index of agricultural commodities compiled by JPMorgan Chase showed a 10% drop in early July, thanks to a correction lowering wheat prices.

The FAO Cereal Price Index was down 7.2 points in June, but still 27.6% above its June 2021 value. In addition, after reaching a near-record level in May, international wheat prices fell by 5.7% in June, but are still up a significant 48.5% from their values last year.

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Meanwhile, the FAO Vegetable Oil Price Index was down 7.6% for the month, driven by lower prices across palm, sunflower, soy and rapeseed oils. Finally, the FAO Sugar Price Index also decreased 2.6%, marking the second consecutive monthly decline for sugar prices and reaching the lowest level since February.

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“Food inflation is set to come off the boil” assuming agricultural commodities stabilize, said JPMorgan economists Nora Szentivanyi and Katherine Marney, according to Bloomberg. “Given the larger share of food in emerging-market consumption baskets the resulting moderation in headline inflation could be sizable, especially in EMEA, which is most sensitive to wheat prices.”

Bloomberg adds that the analysts’ base case is a halving in global food inflation from a 13% annual rate in the second quarter to between 5.5% and 6% in the final three months of the year. “That could offer a 1.5-percentage-point drag from the consumer price index — and an even larger 2-percentage-point damper on inflation in emerging markets.”

The June Consumer Price Index (CPI) is set to be released Wednesday, July 13. In May, the index increased 8.6% for the 12 months, the largest 12-month increase since the period ending December 1981. The food index rose 1.2% in May, following a 0.9% increase in April and the food at home index increased 1.4%, the fifth consecutive increase of at least 1%, as GOBankingRates previously reported.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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