SO many potential subjects this week. There was Mervyn King’s Northern Rock interview and the kerfuffle at the Treasury when he said Alistair Darling had the final say (on King’s recommendation) in not supporting a Lloyds TSB takeover of the troubled bank.

There was the Bank of England’s decision to leave interest rates at 5.75%. And of course there was that pesky oil price, whose flirtation with $100 a barrel was enough to push a litre of unleaded above £1 for the first time. I remember my dad filling the entire tank of our elderly Hillman with leaded petrol for £1.

I’ll come back to the Bank and oil. But I want to fulfil a promise by writing about something else that is rising strongly in price, food.

Food prices in dollar terms are up by more than 30% on a year ago, according to the Economist commodity-price index. The rise in sterling and most other currencies is less, but still significant.

Associated British Foods, one of Britain’s biggest food manufacturers and owner of the discount fashion chain Primark, says prices for four of its most important food commodities – wheat, corn oil, malting barley and dairy products – have doubled in a year.

In some countries such as Mexico and Italy rising prices for staple foods have become a hot political issue. In all countries they have complicated matters for central banks. “There’s little central banks around the world can do to prevent food prices from rising,” Mexico’s central-bank governor, Guillermo Ortiz, said last week. Mexico has just raised interest rates, as has Australia, in response to the commodity-price boom.

Analysts at Credit Suisse First Boston point out that German food prices are up nearly 5% on a year ago and will push euroland inflation to 3% in the coming months, which could prompt a further rate rise from the European Central Bank. As a frequent purchase, rising food may have more impact on people’s inflation expectations than other goods.

In Britain, food prices were up by nearly 4% in September compared with a year earlier, but milk, cheese and eggs prices rose 6% in that month alone and margarine and butter were up 15%.

Why are food prices rising so strongly? They are highly volatile, driven by the success of harvests, weather conditions and other short-term factors. A shortage one year is often followed by a glut the next, as farmers respond to the price signal and plant more of the crop for next time. So a sharp rise in food prices in 2000-1 was followed by years of weakness.

Much of the analysis of current high food prices confuses these short-term factors with longer-term trends. So the sharp rise in China’s inflation to more than 6%, a 10-year high, is not due to the fact that Chinese consumers have suddenly discovered meat. It has more to do with the fact that pork supply has been hit by a nasty outbreak of blue-ear disease.

The Chinese, in fact, are already big meat eaters, with average consumption per head close to that of Britain, and not far behind America. Half of the world’s pigs, after all, are in China. This is not to say that rising prosperity will not increase China’s protein consumption – it will – but it is not happening overnight.

China, with 20% of the world’s population but only 7% of its farmland, much of it poor quality, is perhaps the least appropriate nation to be developing a greater fondness for meat. As Jing Ulrich of JP Morgan pointed out last week, much of China’s production of corn and soyabeans goes for livestock feed. It takes 5kg-7kg of grain to produce 1kg of pork.

A recent report from UBS, What’s Up With Food Prices, does a good job in disentangling short-term from long-term factors. “While rising Asian affluence or climate change are likely to have important influences on food prices over time, recent price jumps appear to have more in common with historic factors, such as poor harvests or animal disease, than they do with 21st century phenomena,” writes Larry Hatheway, the report’s author. “Even demand for biofuels appears to have had only a modest impact on prices.”

This is confirmed by figures from the Department for Environment, Food and Rural Affairs (Defra). Only 2.25m tonnes of wheat, 1.5% of EU production, will be used globally for bioethanol production in 2007-8.

Even so, some long-term trends – a rising population of affluent people in Asia, a gradual increase in demand for biofuels and the impact of climate change – point to rising food prices over time.

There is an echo in some current analysis of the fears of the early 1970s, when the Club of Rome think tank warned that we were heading for a Malthusian crisis of insufficient food to feed the world’s growing population. But, without going too far down that route, there will be significant pressures.

There is also an important interaction between the high price of oil and higher food prices. Expensive oil adds directly to the costs of growing, harvesting and distributing farm produce. It also increases the incentive to turn over crops to biofuels.

Some would say we have had cheap food for too long. The National Farmers’ Union notes that, if food commodities had kept up with inflation over the years, wheat prices would be several times their current level. It is also true that the impact of higher food prices is most serious in poor countries – and for poor people in rich countries.

Increases in the price of commodities account for only a small part of the rise in food prices. Defra calculates that bread prices need to rise by only 6% even if the doubling of wheat prices is fully passed on. Most of the cost of the food we buy is in processing, production, labour costs, transport and margins.

But to return to where I started, rising food prices – like the high price of oil – are something the Bank could do without. It is possible that these high prices will be balanced by lower prices for other goods and services, but that is asking quite a lot.

The Bank will probably say in its inflation report this week that it left interest rates unchanged because the downside risks to growth were balanced by upside risks to inflation. “Agflation” – those rising food commodities – won’t give us stagflation but they could complicate things. The danger is that internationally generated food and energy-price increases keep inflation and interest rates in Britain too high for comfort, preventing the Bank from responding to the slowdown.

PS: I am a great fan of BBC Radio 4. But I felt like Disgusted of Tunbridge Wells the other day when I listened to the Thought for the Day slot. In it, Martin Palmer, secretary-general of the Alliance of Religions and Conservation (founded in 1995 by the Duke of Edinburgh) was opining on the credit crisis.

It was, he suggested, all down to “usury” and that Christianity had changed tack – like Islam and Daoism (or Taoism) it had once opposed the charging of interest on money. “Sadly, Christianity started abandoning its opposition to usury in the Reformation in the 16th century, so opening the floodgates to capitalism,” he said.

Note the floodgates. Note also what he said a couple of sentences later: “You see, if people want more and more, it can only lead to disaster.” At a time when the government is concerned about the kind of message young people are getting from inflammatory clerics, this kind of barking message from the Radio 4 pulpit is worrying. If people didn’t want more, that really would be an economic disaster.

Anyway. Lots of entries to my Freakonomics competition – films that had real-life consequences – are coming in. Martin Dedman reminds us that the Mrs Miniver stories, and the 1942 film starring Greer Garson, hardened American attitudes against Germany. Churchill said it did more for the Allied cause than a flotilla of battleships. I will review all entries in a couple of weeks. There may even be a prize.

david.smith@sunday-times.co.uk

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