A growing middle class worldwide is contributing to a rise in demand for more nutritious food products, pushing up costs, said Abby Joseph Cohen, partner and senior U.S. investment strategist at Goldman Sachs Group Inc.
“We may have already begun a structural rise in food prices,” Cohen said today at the Bloomberg Global Inflation Conference in New York hosted by Bloomberg Link.
An expanding global middle class is demanding “better food,” including products with higher protein content, Cohen said. As demand rises, so have prices, she said.
Slowing global economic growth is restraining increases in the costs of energy and other commodities, which surged earlier this year.
The worldwide inflation rate is forecast to moderate on an annual basis to just above 3 percent by the end of this year, from 3.7 percent in June, when most central bank targets were breached, according to economists at JPMorgan Chase & Co.
The U.S. faces a “one-third chance’ of relapsing into recession, Cohen said.
The Fed still has tools to invigorate the U.S. economy, including replacing short-term securities in its Treasury portfolio with longer-term bonds, Fed Chairman Ben S. Bernanke has said. Economists at Wells Fargo, Goldman Sachs and elsewhere expect the central bank will take such action at its Sept. 20-21 meeting.
Such a move would help lower rates on everything from mortgages to car loans. In theory, that would encourage people to spend more, strengthening the economy.
William Poole, former president of the Federal Reserve Bank of St. Louis, said the Fed won’t be able to offset the damage to the economy from fiscal tightening.
“I think it is very, very unfortunate the Fed is going down this path,” said Poole, who also spoke at the conference.
Poole said Bernanke should give a speech devoted to the “problems of fiscal policy” and make it clear that the Fed alone can’t fix all that ails the economy.
Bernanke delivered such a warning in his Aug. 26 speech in Jackson Hole, Wyoming. “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Bernanke said. He called on Congress and the White House to consider ways to curb surging home foreclosures and to put Americans back to work.
The Fed on Aug. 9 pledged to hold its benchmark interest rate at a record low through mid-2013 in a bid to bolster the recovery.