Focus is on core inflation but global food prices matter

The focus is on core inflation for policymaking, but headline inflation still matters for global consumers. For many countries, food inflation is more important than in the US since it is a larger portion of their consumption basket. Food demand is inelastic. Hence, food increases are a drag on other spending. We can look at nominal prices, but the real price tells us whether there is something more going on in the agriculture sector that will not go away in the next quarter or two. 

Real prices are exploding to the upside similar to the last time we had global food riots. Oil prices have exceeded the maximum for the entire period of reporting by the FAO. Overall prices are moving to the same levels as the in the great commodity surge from over a decade ago. Congestion and logistics can explain some of these price increases given that futures prices have gone into backwardation.  

However, monetary policy cannot solve problems of real food prices. The same can be said for fiscal policy in the short run. In this case, micro structural and regulatory policies matter. Real food increases, like energy prices, adds to the complexity faced by policymakers.