Global Food Inflation Continues Apace Despite US Dollar’s Recent Declines

Weakened dollar has lowered import costs in many parts of the world, but many countries see little or no inflationary relief

February 6, 2023

Despite the US dollar’s weakening from its recent peak — easing import costs in many parts of the world — many developing countries that rely heavily on food imports continue to struggle with sky-high domestic food inflation.

That’s in contrast with the US, where food price inflation has begun to moderate and should continue to head lower in the coming months, according to a Gro analysis using our US Food Price Index, a consumption-weighted basket of food prices that has proved to be predictive of inflation trends.

Most agricultural commodities are traded in US dollars, which makes food imports more expensive when a country’s currency declines against the dollar.

For example, in Sierra Leone, food price inflation is currently running at 160% since the beginning of 2020 — when global food price increases began to accelerate — according to Gro’s Agricultural Price Changes in Local Currency app (see the map below). Over that same period, the country’s currency, the leone, dropped 49.9% against the US dollar. Similarly, in Sri Lanka, food price inflation is 174% over the past two years, while the rupee is down 50.2% versus the dollar.

However, many developing countries have seen little or no inflationary relief as a result of the dollar’s recent weakening — in part because the US currency remains elevated on a historical basis. In addition, food inflation is being driven by multiple factors, including extreme weather events, geopolitical conflicts, and gyrating energy prices that fuel farm input cost volatility.

The US dollar’s value has declined against a basket of currencies by 10.8% since hitting a recent peak in late September. Year over year, however, the US Dollar Index is still up by 6.3% and is up by 12.5% over the past two years. (See graph below.)

The value of the dollar (blue line) against a basket of currencies soared as the Fed raised interest rates (orange line) aggressively to control inflation. A recent slowing of the Fed’s rate hikes has resulted in the dollar weakening. The red lines indicate changes in the dollar’s value over two years, one year, and since the Sept. 27, 2022, peak.

Some countries should benefit from the dollar’s recent decline, including the Philippines, according to a Gro analysis of agricultural price changes in local currencies. The Philippines is one of the most food-insecure countries in Asia due to its heavy reliance on food imports.

Philippine beef imports, for example, averaged 12,900 tonnes per month in the 12 months ended April 2022 at an average cost of 183,000 pesos/tonne. That same volume of beef, which is purchased from the US and other countries, would have cost 215,000 pesos/tonne, a 17% increase, at the height of the US dollar’s ascent in the fall.

Today, the cost of Philippine beef imports in local currency terms is 204,000 pesos/tonne, down 5.1% from its recent peak. Gro’s cost calculations reflect only the change in the peso/US dollar value and don’t factor in price changes of the underlying commodity, shipping costs, or other external factors.

Like the Philippines, many countries battling food insecurity share similar characteristics — heavy reliance on imports and less stable economies — and these features create a more acute currency impact during periods of heightened volatility as investors move to safety. Factors such as trade flows and currency moves can be monitored with data available through Gro.

While the decline in the US dollar certainly helps, it can only provide some marginal relief in those nations suffering crippling food inflation, such as Egypt, where food price inflation is 196% in the past two years, Turkey (411%), and Ghana (201%), to name but a few.

Gro’s Agricultural Price Changes in Local Currency app compares prices for key commodities and local currency moves since January 2020. The app, which updates daily, helps translate and quantify how food inflation and currency shifts have impacted food security around the world. Gro’s Currency Browser app provides users with a comprehensive view of multiple currencies’ performance against the US dollar for various time frames. Contact us here to learn more about these resources.

This map shows Gro’s Agricultural Price Changes in Local Currency app, which compares prices for key commodities and local currency moves since January 2020. The app helps quantify how food inflation and currency shifts have impacted food security in countries around the world.