Food prices will push headline inflation higher

We estimate that surging agricultural commodity prices will drive consumer food inflation to around 5% later this year, from just under 2%, which would add around 0.8 percentage points to headline CPI inflation. However, this bout of food inflation will be temporary. We expect commodity prices to fall back as supply shocks fade and speculative demand weakens. Underlying core inflation will be contained by significant excess capacity, high unemployment, and slower growth in household spending and investment.