Abstract
This paper analyses the commodity price pass-through along the pricing chain for the global commodity price index and the indices of its main categories (i.e., agricultural raw materials, food and beverages, energy and metals) in the world, advanced and emerging economies. To do so, the study considers country-by-country vector autoregression models and pool the results by taking weighted means for 18 advanced economies and 19 emerging countries, as well as for the world (defined as the sum of advanced and emerging economies). The results show the following: (i) there is evidence in favour of partial pass-through from commodity prices to producer prices, although the evidence for the pass-through to consumer prices is less evident; (ii) the pass-through in the world seems to be led by both advanced and emerging countries for producer prices and only by advanced economies for consumer prices; (iii) higher prices in the four categories (agricultural raw materials only in the short-run) induce significant higher producer prices in almost all cases, with shocks in the prices of energy and metals showing the largest effects; and (iv) energy prices explain the highest variability of producer and consumer prices.
Highlights
IntroductionIn the mid-2000s, commodity prices (specially, food and energy prices) experienced a sharp increase driving inflation up worldwide
In the mid-2000s, commodity prices experienced a sharp increase driving inflation up worldwide
When we look at the pass-through along the price chain for the price of agricultural raw materials, we observe that the impact of a shock in this price is only statistically significant in the short-run for the producer prices in all groups of countries
Summary
In the mid-2000s, commodity prices (specially, food and energy prices) experienced a sharp increase driving inflation up worldwide. This fact renewed the interest in studying the relation between commodity prices and inflation. It has been well established in the literature that commodity prices could affect inflation through the first-round effects, either the direct effects on consumers (e.g., more expensive energy bills) or the indirect ones on producers (e.g., higher production costs due to higher energy costs), and the second-round effects related to consumer and producer expectations that may impact negatively on consumption and investment (Castro et al, 2017; ECB, 2010). Previous evidence shows that commodity price changes affect the economic growth rates in low-income countries (Bredenkamp & Bersch, 2012; International Monetary Fund, 2012; UNCTAD, 2012)
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