Impact of Energy Prices on Global Food Inflation

Historically, high energy prices have been correlated with significant spikes in global food inflation. This section explores the relationship and the current situation as of March 2026.

Historical Context

• In July 2008, Brent crude reached $147.5 per barrel, contributing to global food inflation with the FAO Food Price Index averaging 34.8% increase for 22 months.
• During the 2022 oil shock related to the Russia-Ukraine conflict, Brent crude peaked at $139.13 per barrel. This period saw 19 consecutive months of double-digit inflation in the FAO index, averaging 26.8% year-on-year.

Current Situation (March 2026)

• The US-Israel versus Iran conflict resulted in Brent prices rising to $119.5 per barrel in March 2026.
• Unlike previous instances, no significant spike in food prices was observed; the FAO index only increased by 1% from the previous year.
• Export prices for major commodities such as wheat, rice, corn, and sugar have either declined or remained stable.

Reasons for Limited Food Price Inflation

• Adequate global supplies due to record productions of staple commodities like wheat, corn, oilseeds, and sugar.
• Global reserves of key commodities are at high levels, mitigating potential supply shocks.

Potential Risks for Future Food Inflation

• Cost-Push Inflation:
  • The closure of the Hormuz Strait has led to a full-fledged energy shock, influencing the cost and supply of fertilizers and crop protection chemicals.
  • Rising costs of fertilizers and agrochemicals may impact crop yields and planting decisions in 2026-27.
• Biofuel Diversion:
  • Persistent high crude prices could incentivize the diversion of crops like corn and sugarcane for ethanol production.
  • Indonesia's aggressive biofuel mandates have increased palm oil prices, with plans to further increase the FAME content in diesel blends.

The energy supply crisis remains a critical factor influencing future food inflation, depending on the conflict's duration and resolution.