PURCHASE NY: The US government's mission to wean the nation from its gasoline dependency is driving-up food prices, warns PepsiCo chairman/ceo Indra K Nooyi.

The surge in demand for corn, which forms the basis of biofuel ethanol, is likely to inflate food costs over the next two to three years, she predicted in an interview with Britain's The Times newspaper.

Nooyi quashed rumours of a PepsiCo merger with French foods and beverages giant Danone; in fact she dismissed any kind of consolidation, claiming it could not cure current inflationary ills.

Her perspective on the US economy is backed by analysts, who fear food and oil prices rises have left the country vulnerable to recession, as has a predicted slowdown in China.

Kevin Logan, senior economist at investment bank Dresdner Kleinwort, forecasts that US inflation will continue at between 2% and 2.5% in 2008.

He adds: "The gold market is anticipating a rise in inflation and the weakness of the dollar itself carries an inflationary threat."

Data sourced from The Times Online (UK); additional content by WARC staff