World food prices up, raising inflation concern

Residents eat lunch along the busy streets of Taguig city, east of Manila July 26, 2009 to try to set a record by having a boodle fight stretching over tables more than 2 km long.

MILAN (Reuters) - Inflation concerns emerged on Thursday as global food prices rose for a second straight month in February, the United Nation's food index showed.

World food prices were up one percent month on month in February, driven by gains in cereals, vegetable oils and sugar, but were still some 10 percent off a record high hit in February 2011, the UN's Food and Agriculture Organisation said.

The FAO's chief economist played down further rises in the near term, looking for stabilisation as crop seasons progress in main producing countries.

"I don't think the events of the last two months are going to be sustained in the coming months, although there is always a risk," FAO's senior economist Abdolreza Abbassian told Reuters.

"But the early (crop) indications suggest that we should not be worried too much about the return to the kind of price levels we had last year this time. We are far from that," he said.

Food prices hit record highs in February 2011, helping to stoke unrest related to the Arab Spring. Prices have fallen since then but their upturn in the first two months of 2012 is raising inflation concerns.

International markets have been brisk with major buying interest from Iran, paying a premium for grain in the face of toughened Western sanctions.

FAO's food price index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 215.3 points in February, up from a revised 212.8 points in January, the Rome-based agency said.

The FAO's index is released just as the European Central Bank meets and is widely expected to keep interest rates unchanged at 1.0 percent after recent cuts.

Euro zone inflation rose slightly to 2.7 percent in February driven by increasing oil prices and feeding expectations the ECB is likely to put off any quick decision to bring interest rates below 1 percent.

SMALLER WHEAT CROPS IN 2012

World wheat output this year is expected to fall 1.4 percent from last year's record crop to 690 million tonnes, but it would still remain above the average of the past five years, the FAO said separately in its Crop Prospects and Food Situation report.

"Although plantings have increased or are forecast to increase in many countries in response to continuing strong prices, a return to average yields is expected in areas where record highs were achieved last year," it said.

The Rome-based agency has raised its estimate of world cereal production in 2011/2012 to 2.344 billion tonnes from a previous estimate of 2.327 billion tonnes.

It has also increased its estimate of world grain stocks at the end of seasons in 2012 to 518 million tonnes from earlier estimated 516 million tonnes.

"Assuming good weather and if production forecasts materialise, we are more or less going into a situation where we can say that supply-demand balance for different cereals is going to be much more comfortable in 2012/2013 (than in the previous season)," Abbassian said.

(Reporting by Svetlana Kovalyova; editing by James Jukwey and Veronica Brown)