Peter Hooper, a Deutsche Bank economist, said a ``mild'' oil shock that pushed prices no higher than $110 a barrel would trim 0.4 percent off global economic growth. That would be a relatively modest effect, considering that economists in a Reuters poll predicted 2011 global growth of 4.2 percent.

If oil reaches $150 a barrel -Mr. Hooper puts just a 10 to 15 percent probability on that -it would wipe 2 percentage points off global economic growth.
Food prices, on the other hand, are widely expected to continue rising, partly because of a recent spate of cropdamaging weather, but also because rising living standards around the world Reuters have pushed up the demand for meat.

Higher food costs will fall most heavily on poorer countries, where food takes up a bigger share of household budgets. The World Bank president, Robert B. Zoellick, said in an interview last week that politicians in rich countries did not always recognize the political and economic challenges that higher food prices pose to developing countries.

If food costs start eating into growth rates for developing economies, the rich nations will have to take notice. The monetary fund estimates that what it calls emerging and developing economies will grow at a 6.5 percent clip this year. Advanced economies are likely to grow at a rate of 2.5 percent. The global economy needs emerging markets' strength. But everyone has to eat.

David Fuller's view As the markets recovered from their 2008-2009 lows, Fullermoney often pointed out that commodities were an important opportunity which would also become the next big problem. That problem has arrived with agricultural prices approaching and in some instances exceeding prices seen in 1H 2008, while crude oil (Brent & NYME) is trading above $100.

The article states that food prices are more serious because they represent a greater proportion of consumption in developing countries. Yes, but fewer people in developing countries commute to work in automobiles so this is to some extent a mute point.

The problem is, even though commodity prices are mostly quoted in soft US dollars, they have still risen too far and too rapidly over the last several months for the good of the global economy. Consequently, they are also a blow to both consumer and investor psychology.

The extent of this problem cannot be fully known at this time because we have yet to see clear technical evidence that foods and other important agricultural commodities such as cotton have peaked. Moreover, we know that improved crop yields are required before we can be certain that prices will fall back to levels where they are no longer a problem.

Similarly, we hope that Saudi Arabia and other oil producers will be both able and willing to offset the current supply shortfall from Libya. However, we do not know if this regional situation will become worse before it eventually improves.

Most of us favour more democratic regimes, improved human rights and additional job opportunities for people in the Middle East. That could even turn the region into another BRIC, as Jim O'Neill has written recently. However the initial transition could easily create additional uncertainty for the crude oil market.

Having predicted that commodity prices would move higher and eventually become a problem, Fullermoney does not wish to either understate or exaggerate the risks.

Food shortages are an important concern but have not yet become a serious global crisis, with the possible exception of corn. Fortunately, the rough rice crop on which the greater Asian region is so dependent has not been similarly affected, to date. Although the price of crude oil is uncomfortably high, it is unlikely to test 2008's crunch heights anytime soon without further supply disruptions.

As investors, you and I can only deal with the reality that markets provide. I expect choppy market conditions over the next few months but can live with that, because I think the longer-term trends strongly favour my portfolio. However, I would not pay up for anything in this environment.

Meanwhile, investors in commodity trackers should be careful what they wish for. There is also a risk of some regulatory changes to curb commodity speculation, as I have mentioned before.