IDEAS home Printed from https://ideas.repec.org/a/pal/imfecr/v60y2012i4p600-633.html
   My bibliography  Save this article

Commodity Prices, Monetary Policy, and Inflation†

Author

Listed:
  • José De Gregorio

Abstract

During the second half of the 2000s, the world experienced a rapid and substantial rise in commodity prices. This shock posed complex challenges for monetary policy, in particular because of the significant increase in food and energy prices, and the repercussions they had on aggregate inflation measures. This paper discusses the role of commodity price shocks (CPS) in monetary policy in the light of recent episodes of such shocks. It begins by discussing whether monetary policy should target core or headline inflation, and what should be the role of CPS in setting interest rates. It is argued that there are good reasons to focus on headline inflation, as most central banks actually do. Although core inflation provides a good indicator of underlying inflation pressures, the evolution of commodity prices should not be overlooked, because of pervasive second-round effects. This paper reviews the evidence on the rise of inflation across countries and reports that food inflation, more than energy inflation, has relevant propagation effects on core inflation. This finding is particularly important in emerging market economies, where the share of food in the consumer basket is significant. The evidence also shows that countries that had lower inflation during the run up of commodity prices before the global crisis had more inflation in the subsequent rise after the global crisis, suggesting that part of the precrisis inflationary success may have been because of repressed inflation. This paper also discusses other factors that may explain different inflationary performances across countries.

Suggested Citation

  • José De Gregorio, 2012. "Commodity Prices, Monetary Policy, and Inflation†," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(4), pages 600-633, December.
  • Handle: RePEc:pal:imfecr:v:60:y:2012:i:4:p:600-633
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/imfer/journal/v60/n4/pdf/imfer201215a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.palgrave-journals.com/imfer/journal/v60/n4/full/imfer201215a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christian Dreger & Malte Rieth & David Pothier, 2015. "Is Globalization Reducing the Ability of Central Banks to Control Inflation? In-Depth Analysis," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 106, number pbk106, December.
    2. John Baffes & M. Ayhan Kose & Franziska Ohnsorge & Marc Stocker, 2015. "The Great Plunge in Oil Prices: Causes, Consequences, and Policy Responses," Koç University-TUSIAD Economic Research Forum Working Papers 1504, Koc University-TUSIAD Economic Research Forum.
    3. Javier G. Gómez-Pineda, 2016. "Commodity Price Fluctuations, Core Inflation and Policy Interest Rates," Borradores de Economia 967, Banco de la Republica de Colombia.
    4. repec:nov:artigo:v:27:y:2017:i:1:p:173-207 is not listed on IDEAS
    5. Atsushi Sekine & Takayuki Tsuruga, 2014. "Effects of Commodity Price Shocks on Inflation:A Cross-Country Analysis," UTokyo Price Project Working Paper Series 038, University of Tokyo, Graduate School of Economics.
    6. Luis A V Catão, 2014. "Comments on Andrew Filardo and Marco Lombardi's paper," BIS Papers chapters,in: Bank for International Settlements (ed.), Globalisation, inflation and monetary policy in Asia and the Pacific, volume 77, pages 155-158 Bank for International Settlements.
    7. Shang-Jin Wei & Yinxi Xie, 2018. "On the Divergence between CPI and PPI as Inflation Gauges: The Role of Supply Chains," NBER Working Papers 24319, National Bureau of Economic Research, Inc.
    8. Mariana Papatulicǎ & Petre Prisecaru, 2016. "Will Low Crude Oil Prices Cause a Global Recession?," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 4(1), pages 107-116, May.
    9. Bentour, El Mostafa, 2015. "On the removal of energy products subsidies in an importing oil country: impacts on prices in Morocco," MPRA Paper 63635, University Library of Munich, Germany.
    10. Marcel Förster & Peter Tillmann, 2014. "Reconsidering the International Comovement of Inflation," Open Economies Review, Springer, vol. 25(5), pages 841-863, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:imfecr:v:60:y:2012:i:4:p:600-633. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.palgrave-journals.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.