Central bankers from the world's industrialised and developing regions voiced concern on Friday over surging food and energy prices, their latest big challenge as globalisation unsettles the balance of supply and demand.
At a Paris conference, central bankers from rising economic powers such as China and India as well as the advanced economies of Europe and North America highlighted the risks of renewed inflation after a decade of moderation.
"The current surge in commodity prices, including food more recently, which is resulting in particular from supply being unable to match higher demand from emerging markets, reminds us globalisation can also lead to upside risks in world inflation," said European Central Bank President Jean-Claude Trichet.
Indian central bank chief Yaga Venugopal Reddy said monetary policymakers faced multiple challenges at once, from the turmoil in financial markets, exchange rate shifts and "unprecedented inflationary pressures due to food and energy prices."
As rising prosperity in China increases its citizens' taste for meat and milk, world production is straining to meet demand, and the central bankers acknowledged it was hard to measure just how big the inflationary threat was.
Tough Times Ahead
There were as many questions as answers from central bankers and other finance officials said life was hard for monetary policymakers everywhere due to major shifts in the economic balance as the U.S. powerhouse slows, and others too, while the emerging world continues to develop strongly.
"I do not believe that price movements continue to move in a constant direction," Dallas Federal Reserve President Richard Fisher said, noting that some prices were rising "straight up."
"The question is where do things settle down," he said.
Argentina central bank governor Martin Redrado said that U.S. economic downturn might slow some other economies too and this could ease demand for commodities, thus easing the current price surges.
"Looking ahead, U.S. weak output growth and its eventual contagion to other economies would restrict non-speculative demand for commodities, especially oil," he said.
That said, International Monetary Fund deputy John Lipsky said he did not see commodity prices easing any time soon.
China's inflation rate is running at an 11-year high of 7.1 percent and seen heading higher, and India's annual inflation rate is running at near 5 percent, according to official statistics.
Food and/or energy prices are also pushing prices higher in the developed world, with U.S. inflation running at more than four percent, euro zone inflation at 3.2 percent.
"There is a quick catch up of the cost side in terms of rising asset prices in China and rising commodity prices in the world," said Chinese central bank vice governor Yi Gang.
The soaring cost of food commodities from wheat to oilseeds to milk is more recent than the rise in oil, which has hit an inflation-adjusted all-time record.
What policymakers' fear now is that rises in everyday food costs will undermine consumers' faith in the power of central banks to keep inflation under control in the longer term, and central bankers at the conference hosted by the Bank of France acknowledged they faced tough challenges.
"The difficulty in the present juncture is disentangling what is structural and what is conjunctural," said Trichet of the ECB, which sets one interest rate for the 15 countries of the euro currency zone.
Speaking at a separate conference in Norway, German central bank boss Axel Weber, who also sits on the ECB's rate-setting council, said: "Long-term inflation expectations derived by break-even rates have also picked up over the past weeks, resuming their upward trend observable since last summer."