Comment 
Share 
Policy Brief
How Will the Food Price Shock Affect Inflation in Latin America and the Caribbean?
Code: IDB-PB-120
Author(s):
Published: April 2011
Language: English
Download file in:
Related topics:
Macroeconomics
Abstract:
There is widespread concern that recent increases in international food prices may have significant effects on domestic food prices and inflation. This note assesses the impact of the recent food price shock on food, non-food and consumer inflation in the countries of Latin American and the Caribbean (LAC). Vector Autoregressive Regressions (VARs) are estimated for each country to trace the effect of international food prices, the price of oil and the value of the US dollar on domestic prices. The results are then used to calculate the potential impact of higher food prices and to project the expected rise in domestic prices to the end of 2011 and beyond, given the actual increase in food prices until February 2011. It is concluded that, due to the food price surge, increases in inflation could exceed 5 percentage points in Bolivia, Dominican Republic, Guatemala and Honduras unless additional policy actions are taken. In some countries with flexible exchange rate systems, such as Brazil, Colombia and Mexico, currencies tend to appreciate as a response to higher food prices and as a result the impact on domestic prices is muted. However, there is no simple pattern of differences between floaters and fixers; the speed and extent of pass-through is quite heterogeneous and dependent on factors such as the importance of food in the overall inflation index and local policy measures.
In the Press:
Brazil:
IDB: Food inflation goes up to 2012 (in Portuguese)
by Denise Chrispim Marin
May 2, 2011
Guatemala:
IDB: The issue is the purchasing capacity of the poor (in Spanish)
by Vernick Gudiel
May 2, 2011
Colombia:
IDB foresees 5% more inflation in Bolivia and Honduras. Better balance in Colombia (in Spanish)
by Agencia EFE
May 2, 2011
Switzerland:
Food price rises impacting four Latin American countries (in Spanish)
by AFP
May 2, 2011
El Salvador:
Food price will rise 7.5% for this year (in Spanish)
by Lourdes Quintanilla
May 2, 2011
Latest Research
Related Research by JEL Codes:
(or click here to find research by JEL Codes)
-
Rule-of-Thumb Consumers, Nominal Rigidities and the Design of Interest Rate Rules
Working Papers
IDB-WP-400 - May 2013
This paper argues that, in the presence of nominal wage rigidities, the exis- tence of Rule-of-Thumb agents and price rigidities does not cause a change in the Taylor Principle as suggested by Galí et al. (2004), and that the only rigid- ity relevant for this result is that faced by Rule-of-Thumb consumers. For doing so, a New-Keynesian model with Rule-of-Thumb agents is proposed. The model discri ... (View publication)
-
Equilibrium Unemployment during Financial Crises
Working Papers
IDB-WP-390 - February 2013
Financial crises in both emerging and developed economies have been character- ized by large output drops and spikes in unemployment and interest rates. To account for these stylized facts this paper builds a business cycle model where financial and la- bor market frictions interact as occasionally binding borrowing constraints and search frictions. The model is calibrated to a Sudden Stop-prone e ... (View publication)
-
Interest Rates and Business Cycles in Emerging Economies: The Role of Financial Frictions
Working Papers
IDB-WP-339 - November 2012
Countercyclical country interest rates have been shown to be both a distinctive characteristic and an important driving force of business cycles in emerging market economies. In order to account for this, most business cycle models of emerging market economies have relied on ad hoc and exogenous coun- tercyclical interest rate processes. This paper embeds a financial contract à la Bernanke et al. ... (View publication)
