Rocketing prices for soft commodities such as tea, coffee, grains and soybeans are stoking up inflationary pressures, creating a nightmare for central bankers and consumers in the industrialised countries like Britain as well as the developing world.

Coffee, cocoa, tea and grain markets are simmering near boiling point, with prices sitting at or near record levels on a combination of speculation by hedge funds and other investors, bad weather in producing countries and strong demand from China.

Jonathan Boyden, head of sugar trading at Ambrian Capital, said soft commodities will likely outperform other commodity asset classes during the next five years, largely because of their ties to energy.

"A lot of the driving force in softs is a pick-up of what has happened in energy," Boyden stated.

He was referring to the increased use of US and Canadian grains and Brazilian sugar cane to make ethanol biofuels, a green alternative to expensive fossil fuels.

Crude oil jumped above $100 a barrel last week and was hovering around $98 on Friday.

Some of the price movements in soft commodities are staggering - Arabica coffee, the highest-quality bean, surged recently to a 10-year high of $1.6015 per pound, up more than 35% in the past year.

Tea prices are also likely to jump to record levels this year, underpinned by production disruptions in Kenya, the United Nations' Food and Agriculture Organisation (FAO) has forecast.

Kenya has been wracked by violence following a disputed national election late last year.

Wholesale tea prices soared last year to an annual average of $1.95 a kilogramme, a 6.5% rise on the previous year and the highest annual level since 2002.

Average tea prices "are expected to reach even higher and possibly record levels" this year following a 10% reduction in shipments from Kenya, the FAO has forecast in a report to the Global Dubai Tea Forum.

Prices in Kenya, the largest exporter of black tea, have jumped to about $2.50 a kilogram amid civil unrest since the disputed elections in December.

The soft commodities market has traditionally attracted large speculative flows, making the price of coffee and cocoa particularly volatile. The current situation is no different, with financial investors, for example, having built the biggest bet on higher cocoa prices in 14 years. Cocoa prices in New York recently reached a 24-year high of $2585 per tonne, up 45% in the past year.

Industry analysts said, however, that blaming only speculators for recent price increases is misleading.

They said the coffee market's fundamentals have tightened significantly, while fears about political instability and forthcoming elections in Ivory Coast, the world's largest cocoa producer, are also supportive.

Of the three soft commodities, coffee is the best example of a tight market, with consumption rising faster than production. That has led to the lowest stocks on record at 18.3 million bags, a level which leaves the market vulnerable.

The unrest in Kenya has also hit the coffee market as supplies from neighbouring Uganda, Africa's largest exporter, have nearly stopped.

Supply and demand in the cocoa market looks less constrained. However, latest data on speculative positions from the US Commodity Futures Trading Commission shows the net long position - bets on price gains - at 61,300 lots, equal to 33% of open interest. This is close to a 14-year high.

This large bet on still higher prices increases the risk of a sharp correction if hedge funds decide to liquidate some of these positions.

Part of the rise in speculative activity is related to political instability and uncertainty over supplies from the West African country of Ivory Coast.

Because they attract so much speculative interest, soft commodity markets also tend to react excessively to higher prices with rapid supply expansions that trigger boom-and-bust cycles.

Looking ahead, the FAO has warned that the tea market faces precisely that danger, with "supply over-reacting to the current price hikes".

As well as betting on the direction of tea and coffee prices, speculators have focused their attention on soybean futures.

US soybean and soyoil futures on the Chicago Board of Trade surged to all-time highs last week, boosted by strong Chinese demand for soy products.

Demand for vegetable oils is strong from China after one of the coldest winters in 50 years damaged the country's rapeseed output.

"The prospect for soybeans stays good for now," said Genichiro Higaki, head of the proprietary fund management team at Sumitomo Corporation, referring to bullish fundamentals including China's increased demand.

Underlining speculation of more imports by China, the world's top soybean buyer, official customs figures showed that China imported 3.44 million tonnes of the oilseed in January, a rise of 41.5% from a year earlier.

China is already battling rising inflation - at an 11-year peak and headed higher - amid rising raw material costs and rapid money growth. Food, which makes up one-third of China's consumer price index, cost 18.2% more in January that a year earlier.

The high prices of many foodstuffs and raw materials is beginning to hit the bottom line of many big corporations such as Associated British Foods, which recently complained of high prices for grains and other raw materials. This has increased the price of bread, pies and pastries in UK shops.

Carlsberg, the big brewing group, has warned UK drinkers that the price of a pint is likely to increase as it battles soaring commodity costs.

The Danish company said it had already increased prices by 1% in the past year and a sharp rise in the cost of goods such as malt and aluminium was expected to lead to further increases.

The price of bread and beer will likely rise further in recent months because grain crops have been hit by drought in Australia and Canada, two of the world's biggest wheat producers.

Food inflation faces more upward pressure because US farmers have barely increased their sowing of cereal crops, despite record prices.