Colin Barr

Following the money in banking, economics, and Washington

Bernanke points finger on food prices

February 3, 2011: 2:11 PM ET

Don't blame the Fed for soaring food prices, Ben Bernanke said Thursday.

Bernanke, the Fed chairman, shrugged off claims that the Fed's embrace of easy money is irresponsibly saddling the likes of China, India and Brazil with runaway inflation in vital food and energy goods.

What a headache

Without naming names, Bernanke urged leaders in emerging countries to stop resisting changes that would shield their populations from the ravages of surging prices.

"In some cases, some of the emerging markets are facing inflationary pressure because their own economies are growing faster than their own capacity," Bernanke said in response to a question at the National Press Club. "It is entirely unfair to attribute excess demand pressures to U.S. monetary policy."

The comment amounts to the latest pressure on China to loosen its peg to the dollar and for other emerging markets leaders to tighten their own policies. Loose money in those countries is part and parcel of a globe beset with unhealthy economic imbalances -- just as it is here.

In response to a question about the civil unrest in the Middle East and the Fed's role in the months-long surge in commodities prices, Bernanke strongly denied that central bank purchases of Treasury bonds, known as quantitative easing, are the primary driver of higher global food prices.

Instead, Bernanke attributed the surging prices of things like corn, soybeans, sugar and livestock to rising incomes in developing countries.

Higher incomes translate into strong growth in global demand for food, particularly an increased appetite for animal proteins such as beef, pork and chicken.

"As people's diets become more sophisticated, their demand for food and energy grows," he said.

Beyond that, Bernanke said, policymakers in developing countries like China, India and Brazil have tools at their disposal to keep inflation under control.

Leaders in those countries have been critical of the Fed's policy, which they contend results in the United States exporting inflation to their shores. But without singling out any country or leader, Bernanke snapped back that those pointing the finger should first pull the levers available to them.

China, for instance, has kept the value of its currency, the yuan, closely pegged to the dollar -- even as China's growth far exceeds that of the United States and inflation in China threatens to surge.

Were China to allow the yuan to appreciate, Chinese inflation would fall. Of course, so would Chinese exports to rich countries such as the United States and the members of the euro zone. A slowdown in the Chinese export machine could result in a destabilizing loss of jobs in China.

So it is unsurprising that the Chinese are slow to embrace this remedy. Nonetheless, Bernanke is right to point out that surging developing markets growth creates its own headaches -- and that it's hardly fair to pin all that pain on the United States.

"It is up to emerging markets to find the right tools to balance their own growth," Bernanke said.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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