"Liberty and baked bread" are all people really need, an old French proverb says. One of those is about to get more expensive as bakeries raise baguette prices to pass on surging grain costs.

"We have no choice," said Michel Galloyer, whose baguette was voted the best in Paris in 2010. "Wheat prices have exploded. We'll have to pass on 4 to 5 cents when flour prices start to rise, probably in February."

The French consume about 23 million baguettes a day -- more than 8 billion every year -- supplied by 33,000 bakeries and retailers such as Carrefour SA, the National Association of French Millers estimates.

Wheat prices almost doubled in the past 12 months on NYSE Liffe in Paris, with March-delivery wheat closing at 251 euros ($336) a metric ton on Jan. 14, after a drought in Russia and floods in Canada and Australia wiped out crops. The dozen "Le Grenier à Pain" stores that Galloyer runs in Paris plan to raise the price of a baguette by 5 cents next month to 1.15 euros.

"We didn't see anything coming in June or July," said Galloyer, who supplies bread to the residence of President Nicolas Sarkozy. "That weighs on margins because we didn't raise the prices at first. I thought it would come down by January."

Since 2007, the price of a baguette at corner bakeries that dot French towns and cities has risen 6.3 percent, according to a study by Familles Rurales. At larger retailers, prices are up as much as 19 percent.

Eoin Treacy's view During an interview with NDTV Profit this morning, I was asked to comment on the potential impact of higher food prices on European monetary policy. My answer was that I believed government bond yields have bottomed which suggests that inflationary pressures are probably going to be more of a concern in future.

The contradiction of a currency that is too weak to contain inflationary pressures for the export led core and far too strong for weak growth economies on the periphery continues to mar the Euro's prospects. The exposure of German and French banks to debt ridden economies on the periphery has been also been a cause for concern among policy makers.

Additionally, Jean-Claude Trichet's term ends this year. His most likely successor, at this stage, is Bundesbank president Axel Weber, who has demonstrated a straight talking style uncharacteristic of most central bankers. His promotion to president of the ECB might well be the price of German support for an expanded Eurozone bailout mechanism. Speculation on the ECB succession is a recipe for increased Euro volatility.

It should also be noted that the Eurozone has not raised rates ahead of the USA in at least the last 13 years. Commodity price Inflation affects the USA and Eurozone in much the same way. Jean Claude Trichet has been quoted over the last week as saying that the inflationary pressures currently being felt in Europe are mostly as a result of energy prices. He has also been quoted as saying that they expect inflationary pressures to moderate by year end. The trend in commodity prices is therefore likely to be key determinant in how quickly rates rise.

Crude Oil, heating oil, gasoline and European natural gas prices all remain on an upward trajectory. Breaks in their progressions of rising major reaction lows would be required to question this view.

Wheat has been a leading performer among food commodities. The CBoT traded contract rallied impressively from June to hit a near-term peak above 800¢. It has held the majority of its advance and is currently retesting the upper side of the five-month range. CBoT traded wheat has underperformed corn, soybeans and other wheat contracts of late. Paris, London, Minneapolis, Kansas and Zhengzhou strong gluten wheat have all moved to new recovery highs increasing the potential for CBoT wheat to do the same.

The Australian floods are also putting upward pressure on commodity prices. Both Greasy and Fine Wool contracts are breaking upwards out of lengthy ranges. This article from Bloomberg may also be of interest.

A large number of commodities, essential to the smooth running of the global economy, are hitting new nominal highs and breaking out of inflation adjusted downtrends. Against such a background, central bank expectations that inflationary pressures will moderate without some form of intervention look unrealistic.