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Reconsidering the Role of Food Prices in Inflation
Author:
Mr. James P Walsh
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https://orcid.org/0000-0002-8839-5865
Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 071
Language:
English
Publication Date:
01 Apr 2011
DOI:
https://doi.org/10.5089/9781455227082.001
ISBN:
9781455227082
ISSN:
1018-5941
Pages:
21
Keywords:
WP; nonfood inflation; core inflation; math
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Food prices are generally excluded from measures of inflation most closely watched by policymakers due either to their transitory nature or their higher volatility. However, in lower income countries, food price inflation is not only more volatile but also on average higher than nonfood inflation. Food inflation is also in many cases more persistent than nonfood inflation, and shocks in many countries are propagated strongly into nonfood inflation. Under these conditions, and particularly given high global commodity price inflation in recent years, a policy focus on measures of core inflation that exclude food prices can misspecify inflation, leading to higher inflationary expectations, a downward bias to forecasts of future inflation and lags in policy responses. In constructing measures of core inflation, policymakers should therefore not assume that excluding food price inflation will provide a clearer picture of underlying inflation trends than headline inflation.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2011: Issue 071