Central bankers sound alarm over food prices

Head of the National Bank of Poland Slawomir Skrzypek arrives to ask questions to the finance commission in Parliament in Warsaw in this January 31, 2008 file photo. (REUTERS/Kacper Pempel)

BASEL, Switzerland (Reuters) - Soaring food prices are helping to push up inflation all around the world, central bankers said on Monday, urging more market competition and free trade to even out prices.

With food prices rising by more than 40 percent in the last year, the issue was high on the agenda at meetings at the Bank for International Settlements in Basel which began on Sunday.

European Central Bank President Jean-Claude Trichet, who chairs the Monday morning global economy session, said all countries, without exception, were affected by significant inflation risks stemming from rises in food, energy and other commodity prices.

Another issue was ongoing tensions in money markets, although there had been recent signs of improvement in equity prices and an easing of perceived credit risk generally.

"Food prices (are) one of the issues we mentioned constantly," Trichet said in summing up the talks. "It is an additional element adding to the energy prices, to the metal prices and a number of commodity prices and that is really at a global level a very important phenomenon."

Central banks urged open and competitive markets to try to tackle price rises, which in the case of food were driven by rising living standards in developing countries, climate change and possibly also speculation, he said.

Other policymakers speaking on the sidelines of the meetings said traditional monetary policy tools -- such as interest rates -- were not suitable to tackle food price inflation.

"Food pressures could be one of the most serious problems that we have to face now," said Polish National Bank President Slawomir Skrzypek.

"Food pressure is a global problem, we have to observe, monitor, but we cannot use monetary policy tools to manage this problem."

Commodity price rises are fuelling historically high inflation rates from the euro zone to China and creating a headache for central bankers also concerned about the economic impact of nine months of financial market turmoil.

MONEY MARKET TENSIONS

Trichet said global growth should remain significant, although somewhat slower, with resilience in emerging markets offsetting a slowdown in industrialized countries.

China's central bank governor said he expected little impact on the country's exports from slower growth in the United States, the world's biggest economy.

"The U.S. may import a little bit less from China. We could see this phenomenon but not very significantly. Basically China exports still grow quite strongly," People's Bank of China Governor Zhou Xiaochuan said, citing export growth to Asia and Europe.

On financial markets, Trichet said there had been some signs of improvement on markets, including share prices and rates on credit default swaps, but the gap between overnight money and three-month rates remained high on both sides of the Atlantic.

This could reflect market participants wanting to hold on to cash buffers despite diminishing credit risk, he said, adding that there was no discussion of further joint liquidity action to tackle market rates.

On Friday the ECB, the U.S. Federal Reserve and the Swiss National Bank extended arrangements to provide U.S. dollar funding past the end of the year.

Other central bankers also noted the market tensions, with ECB Governing Council member Nout Wellink telling news agency Market News that although there had been some improvement, the situation remained fragile.

Other top policymakers attending the talks, including U.S. Federal Reserve Vice Chairman Donald Kohn and new Bank of Japan Governor Masaaki Shirakawa, made no public comments after the meetings.

(Additional reporting by David Milliken; Editing by Gerrard Raven)