Wheat prices unlikely to fuel food inflation

Negligible impact foreseen and only on emerging markets.

Sharply rising wheat prices may fall back in the coming weeks, quelling fears of inflation and averting food shortages worldwide, analysts say. "We believe the rise in global wheat prices should not translate into a significant rise in global food inflation. We expect the rise in wheat prices to have a small impact on inflation in emerging markets and virtually no impact in the developed world," said a report from Bank of America Merrill Lynch.

Wildfires in Russia, which wiped out the majority of the country's wheat crop for the year, led to wheat futures increasing almost 75 per cent from the beginning of last month. Wheat futures fell yesterday, with contracts for delivery in December falling 1.9 per cent to $7.11 per bushel.They had reached a high of $8.15 on August 5. People in developed markets would not see sharp increases in wheat because they spent comparatively little of their incomes on food, the report said.

Consumers in emerging markets, where food costs accounted for a larger proportion of incomes, would feel the effect of an increase in wheat prices and governments would come under pressure to introduce or increase food subsidies, the report said. However, it dismissed fears that poorer nations would see a repeat of the food shortages of 2008, adding that most governments would resist calls to introduce price controls. "Futures prices for wheat have already started to roll over, implying to us that whatever price increases we do see will be short-lived," the report said.

But Doug Whitehead, a commodities analyst at Rabobank, said the global wheat market might struggle to make up for the lost Russian crop. "While global wheat inventories look sufficient to absorb the production shocks we've seen in the Black Sea region, the export market is really very tight. "The only area with surplus export availability is the US. But, given they're going to be having a big export programme, there are concerns that the US might not have the capacity to meet global needs."