Macro Analysis /

Chart of the Week - The differing impact of surging food commodity prices on CPI inflation

    Daniel Vernazza
    Daniel Vernazza

    Chief International Economist

    1 April 2022
    Published by
    • The Russia-Ukraine crisis has led to a sharp rise in global commodity prices, particularly for energy and food. On average in March, futures prices were up 46% for wheat, 23% for corn, and 20% for soybean compared to January averages.
    • Our Chart of the Week shows our model-based estimates of the impact of a 10pp rise in the UN Food and Agricultural Organization’s (FAO) benchmark index of food commodity price inflation on all-item CPI inflation in the near term (within 3 months) and in the longer run (after one year) for the US and Europe. We estimate that CPI year-on-year inflation would rise by 0.1pp in the US, around 0.2pp in the eurozone, and about 0.6pp in EU-CEE111 after one year. At the extreme, for Latvia the impact is almost 1pp.
    • There are two main channels through which food commodity prices influence all-item CPI inflation.2 First, via the weighting of food in the CPI basket, which is lower for developed countries (8% in the US, 15% in the eurozone) than in EU-CEE11 (20% on average). Second, via the pass-through from food commodity prices to CPI food prices, which tends to be lower in developed economies than in emerging markets.3 It reflects that the costs of food processing, transportation, packaging and marketing make up a much larger proportion of retail food prices in developed economies than emerging economies. Consequently, the surge in food commodity prices will weigh more heavily on EU-CEE11, and emerging markets more generally, than developed markets.