How the coronavirus outbreak could trigger a rise in global food prices

With China focused on averting a pandemic and the US Fed fretting over weak inflation, authorities in both countries look set to keep monetary policy settings accommodative for longer. That may well prompt capital to flow into soft commodities

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A man shops for tomatoes at a market in Hong Kong on February 3. World food inflation was already heading higher in the fourth quarter of 2019. That trend may continue. Photo: AP

Published: 9:00am, 5 Feb 2020Updated: 9:00am, 5 Feb 2020

Efforts are being made globally to contain coronavirus 2019-nCoV, but policymakers might also wish to keep an eye on rising global food prices. Easier monetary policy settings in major economies, whether coronavirus-related or not, may yet put upward pressure on certain asset categories.

That might see renewed capital flows into soft commodities. After all, markets are amoral and the world still has to eat, coronavirus or no coronavirus.

The Federal Reserve may have kept its benchmark US federal funds rate unchanged on January 29 but its tone arguably became more dovish. Meanwhile, already evidenced in Monday’s injection of US$174 billion of liquidity into China’s financial system, the People’s Bank of China will employ monetary policy measures to try to alleviate the economic consequences of the new coronavirus.

Both the Chinese and US central banks may end up being somewhat more accommodative on monetary policy, and for longer, than markets had originally envisaged. And accommodative policy often lends itself to asset price inflation.

US Fed chief Jerome Powell speaks to reporters after the board’s January 29 meeting, at which the central bank decided to keep its benchmark US federal funds rate unchanged. Even so, the Fed’s tone has turned more dovish. Photo: Xinhua

A comparison between last week’s Fed statement and the previous one on December 11 illustrates how the Fed tweaked its language on inflation.

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