Inflation in developing Asia: pass‐through from global food and oil price shocks

Abstract

The world economy experienced a sharp spike in food and oil prices during 2007 and 2008. In light of developing Asia's dependence on imported oil and food, we can expect higher global food and oil prices to result in higher domestic consumer prices in the region. However, the actual impact of the global commodity shocks on consumer price inflation in developing Asia depends on a number of other factors, including government policy measures. The objective of this paper is to examine empirically the extent of the pass‐through of global food and oil prices to domestic consumer prices in nine countries in the region. The main empirical result is that the magnitude of the pass‐through has been limited. Government policy measures, for example, subsidies and price controls, played a role in reducing or delaying the pass‐through of oil and food price increases to domestic prices.