On the Anatomy of Inflation: The Variability of Relative Commodity Prices in Argentina

Abstract

THERE IS SUBSTANTIAL EVIDENCE indicating that the inflationary process is not neutral with respect to the structure of relative prices. A1though real variables also affect the distribution of commodity prices, the variability of relative prices appears to be largely increased by monetary phenomena. The general picture emerging from the empirical literature links the cross-sectional variability of commodity prices to the variability of the aggregate rate of inflation over time, to the rate of unexpected inflation, and to the rate of monetary expansion. 1 Most studies, however, have dealt with low-inflation countries, for which it is more difficult to isolate real from monetary effects on relative price changes. The purpose of this paper is to analyze in detail the characteristics of relative-price behavior within the context of very rapid and variable inflation. Using disaggregated monthly data for Argentina, a number of specific aspects of that country's