Sarah El Safty and Ezgi Erkoyun by Karin Strohecker

LONDON/ISTANBUL/CAIRO (Reuters) – Like for millions of people in developing and emerging market countries around the world, shopping for staple foods has turned from a necessity into a luxury for Selcuk Gemici.

According to the 49-year old, who lives in Istanbul’s biggest city with his wife and their two children, fresh produce is rarely available as his family relies on beans, bulgur, pasta and other legumes, the man says that it’s often difficult for them to buy fresh food.

Gemici said, “Everything is so pricey that it’s impossible to buy or eat what you want. We only can buy what we have now.” Gemici: “My children don’t get enough nutrition.”

The COVID-19 disruptions, as well as weather problems have made global food prices rise for the past two years. The supply shocks that Russia caused to oils and grains saw them reach an all-time high in February and March.

With energy prices rising, inflation rates are on the rise. Turkey and Argentina, with an annual inflation rate of around 70% and 60% respectively, might seem like outliers. However readings from Brazil to Hungary are in the double-digits. This makes the 8.3% U.S. inflation seem modest.

Rising food costs are an emerging market hot topic, increasing the risk for civil unrest. This raises the echoes from the Arab spring. It also puts policy makers in a dilemma between providing fiscal support that will ease the suffering of their populations or preserving government finances.

Inflation baskets are the largest categories. This is because the number of items used in calculating the cost of living determine the size of the inflation. Food accounts for about half of the total in developing countries. It also accounts for approximately 40% for low-income countries.

The food producers are becoming more vigilant: India declared a ban for wheat exports over the weekend, and Indonesia suspended palm oil exports in an effort to contain rising home prices.

Soaring wheat and rising food prices fuel inflation https://fingfx.thomsonreuters.com/gfx/mkt/klvykoeqwvg/Soaring%20wheat%20and%20rising%20food%20prices%20fuel%20inflation.PNG

Marcelo Carvalho from BNP Paribas’ global emerging markets research, stated that the Ukraine war has caused food shortages and also disrupted fertilizer supply. This could lead to longer-term food inflation, Reuters reported.

Carvalho stated, “This is going to be here forever.” Food is very important – inflation perceptions are amplified when food prices change.

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Um Ibrahim (60-year-old widow selling headscarves at a street stand in front Madinet Nasr’s Cairo mosque) has found it difficult to feed her four children.

“All prices rose–clothes, vegetables, poultry and eggs–what am I going to do?” After laying her ware out on a clean cloth, she inquired.

Egypt, which is the biggest importer of wheat worldwide, saw inflation rise to over 13% in April. It will hike its interest rates this week at a meeting, after having devalued the currency 14% in March.

The emerging market policymakers have pushed interest rates up by hundreds of basis points since 2020 in an attempt to reduce price pressures. They also want to ensure investors have a premium for rising yields.

According to World Bank predictions, emerging economies could expand only 4.6% this year. This is a decrease from the 6.3% forecast earlier.

Emerging market inflation https://fingfx.thomsonreuters.com/gfx/mkt/mopanzmmqva/EM%20inflation%20pressures.PNG

BlueBay Asset Management’s head of EM Debt, Polina Kurdyavko says there are three choices for governments: Give more subsidies to consumers, let prices go up and suffer from inflation, or something in-between.

Kurdyavko declared, “There are not easy solutions.”

A number of countries have taken measures to counter inflation and currency crashes. Turkey raised its minimum wage 50% in December. Chile will also increase the minimum wage this year.

South Africa is currently debating whether or not to double the social relief grant it launched in 2020, and make this scheme permanent.

Economists worry that emerging economies will face a new wave of instability due to the recent increases in food costs. Beata Javorcic chief economist, European Bank for Reconstruction and Development, stated that North Africa where food inflation was an important factor in the Arab Spring revolts of a decade back, looks particularly vulnerable.

She said, “The irony in this war is that although everyone expected Russia to be in crisis it’s actually North African nations that are more likely to find themselves in an emergency due to their high food prices.”

The pain won’t stop there. According to Verisk (NASDAQ;) Maplecroft, 35% of the nations at risk for civil unrest or high-risk of it by 2022’s fourth quarter were countries of middle income.

BNP’s Carvalho stated that spending to reduce inflation will result in a financial cost which could cause more problems down the track.

He said, “In emerging markets fiscal sins can be forgiven but they are not forgotten.” Everybody felt that they were entitled to a free check for the last few years, partly due to low interest rates. It’s a little more complicated now that the interest rates have risen.