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U.S. drought will lead to inflation and higher food prices, says report

U.S. drought will lead to inflation and higher food prices, says report

HSBC warns that central banks are unlikely to raise interest rates to counter higher living costs due to softening labour market

Larry Elliott, economics editor
guardian.co.uk, Monday 20 August 2012 13.29 EDT

America's worst drought in half a century will push up inflation and put a fresh obstacle in the path of the struggling global economy, one of the UK's leading banks has warned.

Senior global economist at HSBC, Karen Ward, said sharp rises in the cost of wheat, corn and soya beans came when growth was slowing but said the weakness of wage pressure meant there was no need for central banks to raise interest rates in response to a higher cost of living.

Blistering heat in the US has destroyed 45% of the corn and 35% of the soya bean crop in the worst harvest since 1988. Russia and Ukraine have also had poor crop yields. Ward said higher food prices would result.

Read more: http://www.guardian.co.uk/global-development/2012/aug/20/us-...