US drought will lead to inflation and higher food prices, says report [Reuters]


Withered ear of corn

Drought conditions in the US have exacerbated a poor harvest and are likely to lead to a rise in global food prices and inflation. Photograph: Nati Harnik/AP

America’s worst drought in half a century will push up inflation and put a fresh obstacle in the path of the struggling global economy, one of the UK’s leading banks has warned.

Senior global economist at HSBC, Karen Ward, said sharp rises in the cost of wheat, corn and soya beans came when growth was slowing but said the weakness of wage pressure meant there was no need for central banks to raise interest rates in response to a higher cost of living.

Blistering heat in the US has destroyed 45% of the corn and 35% of the soya bean crop in the worst harvest since 1988. Russia and Ukraine have also had poor crop yields. Ward said higher food prices would result.

“This is another dampener for the global economy at a time when the headwinds are already acute,” Ward said. She added that workers were unlikely to press for higher wages to compensate for dearer food at a time when labour markets were softening and this would allow policy makers to ignore the increase in inflation as an external shock

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