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Effects of commodity price shocks on inflation: A cross-country analysis

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  • Atsushi Sekine
  • Takayuki Tsuruga

Abstract

Since the 2000s, large fluctuations in commodity prices have become a concern among policymakers regarding price stability. This paper investigates the effects of commodity price shocks on headline inflation with a monthly panel consisting of 144 countries. We find that the effects of commodity price shocks on inflation virtually disappear within about one year after the shock. While the effect on the level of consumer prices varies across countries, this transitory effect is fairly robust, suggesting a low risk of a persistent second-round effect on inflation. Employing the smooth transition autoregressive models that use past inflation as the transition variable, we also explore the possibility that the effect of commodity price shocks could be persistent, depending on inflation regimes. In this specification, commodity price shocks may not have transitory effects when a country’s currency is pegged to the U.S. dollar. However, the effect remains transitory in countries with exchange-rate flexibility.

Suggested Citation

  • Atsushi Sekine & Takayuki Tsuruga, 2017. "Effects of commodity price shocks on inflation: A cross-country analysis," CAMA Working Papers 2017-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2017-45
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    11. Indrė Lapinskaitė & Algita Miečinskienė, 2019. "Assessment of the Impact of Hard Commodity Prices Changes on Inflation in European Union Countries," Central European Business Review, Prague University of Economics and Business, vol. 2019(5), pages 18-35.
    12. Ting-Ting Sun & Chi-Wei Su & Ran Tao & Meng Qin, 2021. "Are Agricultural Commodity Prices on a Conventional Wisdom with Inflation?," SAGE Open, , vol. 11(3), pages 21582440211, August.
    13. Afees A. Salisu & Raymond Swaray & Hadiza Sa'id, 2021. "Improving forecasting accuracy of the Phillips curve in OECD countries: The role of commodity prices," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2946-2975, April.
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    15. Christina Anderl & Guglielmo Maria Caporale, 2024. "Global Food Prices and Inflation," CESifo Working Paper Series 10992, CESifo.
    16. Ablam Estel Apeti, 2022. "Household welfare in the digital age: Assessing the effect of mobile money on household consumption volatility in developing countries," Post-Print hal-03819779, HAL.
    17. Garzon, Antonio J. & Hierro, Luis A., 2021. "Asymmetries in the transmission of oil price shocks to inflation in the eurozone," Economic Modelling, Elsevier, vol. 105(C).
    18. Apeti, Ablam Estel, 2023. "Household welfare in the digital age: Assessing the effect of mobile money on household consumption volatility in developing countries," World Development, Elsevier, vol. 161(C).
    19. Tomomi Miyazaki & Kazuki Hiraga & Masafumi Kozuka, 2018. "Stock Market Response to Public Investment under the Zero Lower Bound: Cross-industry Evidence from Japan," Working Papers 171806, University of California-Irvine, Department of Economics.
    20. Li, Houjian & Huang, Xinya & Guo, Lili, 2023. "Extreme risk dependence and time-varying spillover between crude oil, commodity market and inflation in China," Energy Economics, Elsevier, vol. 127(PB).
    21. Andrea Gazzani & Vicente Herrera & Alejandro Vicondoa, 2024. "The Asymmetric Effects of Commodity Price Shocks in Emerging Economies," Working Papers 311, Red Nacional de Investigadores en Economía (RedNIE).

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    More about this item

    Keywords

    Commodity prices; inflation; pass-through; local projections; smooth transition autoregressive models;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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