How Global Price Shocks Feed into Inflation at Home

When global commodity prices rise, inflation often follows, but the impact is neither immediate nor uniform. The same external shock can translate into very different inflation outcomes depending on how it moves through each economy. 

The global price surge of 2021-2022 illustrates this clearly. Countries across Central America, Haiti, the Dominican Republic, and Mexico faced broadly similar external shocks, yet inflation evolved differently in timing and persistence.

A closer look at food and energy prices helps explain these differences. Comparing international commodity prices with consumer price indices shows that external shocks do not pass through mechanically, and that domestic factors play a key role in shaping how inflation unfolds. 

Since 2020, successive global shocks have pushed up commodity prices. The post-pandemic reopening strained supply chains, while Russia’s invasion of Ukraine disrupted global food and energy markets. In import-dependent economies, these shifts quickly translated into domestic inflation pressures.

More recently, renewed geopolitical tensions in the Persian Gulf and disruptions to maritime traffic through the Strait of Hormuz have triggered a new episode of energy price volatility. Brent crude rose from around $70 per barrel in late February to above $82 in early March 2026. For economies reliant on imported energy, such shocks can once again raise transport, electricity, and production costs, pointing to the risk that similar dynamics may re-emerge.

The COVID-19 pandemic initially led to a sharp contraction in demand and a significant decline in commodity prices. The subsequent global reopening placed pressure on supply chains and triggered a surge in shipping costs, contributing to a broad-based increase in prices. 

This was followed by Russia’s large-scale invasion of Ukraine in 2022, which further disrupted food and energy markets, raising the prices of grains, fertilizers, and crude oil. And more recently, geopolitical tensions in the Middle East have added to uncertainty and volatility in energy markets, given the strategic importance of the Strait of Hormuz.

In economies with a high dependence on imported commodities, how do these global shocks translate into domestic prices? Understanding these transmission channels is key to explaining why inflation responds differently across countries, as shocks affect costs through multiple pathways, from direct import prices to transportation and logistics.

The inflation episode of 2021 to 2022 coincided with a sharp increase in global commodity prices. As Figure 1 shows, the Food and Agriculture Organization (FAO) Food Price Index rose significantly relative to its January 2019 level and peaked in early 2022 shortly after the outbreak of the Russia-Ukraine war. Brent crude oil followed a similar trajectory. 

While the oil price cycle was synchronized globally, inflation responses differed markedly in both timing and persistence. In some economies inflation rose almost simultaneously with oil prices, while in others the increase appeared with a delay. Inflation also remained elevated even after oil prices declined, suggesting that commodity price increases pass through more quickly than subsequent decreases.

Food prices represent a key channel through which global shocks affect domestic inflation. As international food prices surged, domestic food CPI increased across most countries in the region.

While international food prices declined after their 2022 peak, domestic food prices in many countries remained elevated. This pattern is consistent with asymmetric pass-through, where price increases are transmitted more strongly than subsequent declines. 

Part of this persistence reflects cost pressures within domestic supply chains. Food inflation reflects not only retail price adjustments, but also rising costs for inputs, transport, and energy faced by producers.

Comparing headline and core inflation helps identify the nature of the shock. When inflation is driven by domestic demand, headline and core prices tend to move together. By contrast, when the shock originates externally, headline inflation, which includes food and energy reacts first, while core inflation adjusts more gradually.

A gap between headline and core inflation emerged across much of the region during the 2021–2022 shock. Guatemala, El Salvador, Costa Rica, Belize, Mexico, and the Dominican Republic experienced periods in which headline inflation exceeded core inflation. Honduras showed a similar, though more moderate, pattern. Panama stood out as the main exception, with headline and core inflation moving closely together.

Haiti’s inflation dynamics differ markedly from the rest of the region. As shown in Figure 2, food inflation remained elevated even after global commodity prices declined in 2022, while inflation moderated across most other economies.

This divergence reflects structural factors and domestic macroeconomic conditions. Haiti’s heavy reliance on imported food products, combined with underlying macroeconomic pressures, has amplified the transmission of external shocks, prolonging domestic food inflation beyond the period of elevated international prices. 

The inflation surge of 2021–2023 reveals several patterns, some of which help explain these differences. 

First, external shocks were highly synchronized as global food and energy prices rose sharply during 2021 and 2022. Second, inflation responses differed across countries despite this common shock, reflecting differences in exchange rate regimes, CPI basket composition, and domestic supply chain structures. Third, food prices acted as a key transmission channel given their large weight in CPI baskets. Finally, domestic price increases often persisted even after international prices declined, suggesting that shocks continue propagating through production costs, distribution margins, and inflation expectations.

These patterns point to the role of multiple transmission channels, from imported goods prices to expectations, and to the importance of domestic conditions in shaping inflation outcomes. Their impact tends to be larger in economies with higher food shares in CPI baskets, greater fuel intensity, and higher pre-existing inflation levels, while stronger monetary institutions appear to mitigate these effects.

Recent geopolitical developments in the Middle East introduce a new layer of uncertainty. If disruptions to global energy markets persist, the same channels could once again generate inflation pressures. The magnitude of the domestic impact will depend not only on global energy prices but also on exchange rate movements, supply chains, and policy responses within each economy.