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Inflation hits consumers worldwide

The rising prices complicate policy efforts to battle recession.

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Skyrocketing food prices, meanwhile, have sparked panic and hoarding of grain in some nations. India has restricted rice exports. Indonesia and several African nations are experiencing unrest over food and fuel prices, the UN Food and Agriculture Organization says.

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"There is a risk that this unrest will spread in countries where 50 to 60 percent of income goes to food," said Jacques Diouf, the FAO's director general, on Wednesday according to a Reuters report. "We have seen riots in Egypt, Cameroon, Haiti, and Burkina Faso."

The erosion of purchasing power worldwide seems to some extent surprising, given the weakening of economic growth. Often, a cooling economy would relieve pressure on commodity prices.

But inflationary pressures often take time to abate. And today, a majority of the world's economic growth is occurring in developing nations such as China, where hunger for raw materials continues unfazed by the US slowdown.

Some economists say that upward pressure on commodity prices should cool this year, especially due to ripple effects from a US recession. But others aren't sure.

"The [economic] surprise of 2008 so far has been the upside surge in inflation, not the downside cut to growth," a team of economists at Merrill Lynch wrote in a March 26 report. "The current global economic expansion will come to an end when emerging market central banks decide to deal with this threat more aggressively."

In theory, prices for given products can move up or down without sparking the broader phenomenon of inflation – defined as a rise in the overall price level.For instance, prices for homes and many electronic goods are falling in the US, even as fuel and food costs rise.

But commodity pressures grab headlines, and can effect self-fulfilling expectations that affect the behavior of businesses and consumers.

Moreover, whether it's called inflation or a price shock, the cost of energy and food could remain under upward pressure now because of supply constraints. It's getting harder for nations to find low-cost oil supplies, and grains are now in demand as auto fuels as well as food.

"The world economy is in a very difficult position, and policymakers do need to be concerned about both [inflation and growth]," says Charles McMillion, an economist at MBG Information Services in Washington.

A key fuel of overall inflation is money supply, and central banks around the world appear to have tilted in recent years toward providing plenty of it.

Moreover, the Merrill Lynch report shows overall money supply growth ratcheting upward in the past year, led by nations other than the US.

Brian Bethune, an economist at Global Insight in Lexington, Mass., predicts that a negative trend – a weakening in the world economy this year – will ultimately dampen commodity prices. "We're going to get into a zone where everything is going to be weak together."