Wednesday, July 9, 2008

World food and fuel map

The Economist has this map indicating the % share of food, fuel and drink in the total household spending. While this share is more than 50% in many parts of Africa, Middle East, Central Asia and a few places in South America, it is between 25% and 40% in India, China and East Asia. It is however less than 25% in North America and Western Europe.

With food, commodity, and energy prices on the rise across the world, and the US economy facing a recession, this map is fairly representative of the monetary policy dilemma facing global Central Banks. Thanks to the relatively smaller share of food and fuel in the household consumption basket, inflation may not be the priority for the greens. In contrast, the dominant share of these items for the reds, yellows and oranges makes them especially vulnerable to inflation. Do we have the makings of a monetary policy decoupling?

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