Russian food inflation and world food prices
Krylov D.
Movements in food prices have a major input in consumer price index and, thus, a significant impact on the living standards. Given the increased volatility of world food prices, it is essential that we understand the impact of this external driver of inflation on domestic price trends in order to produce a more accurate forecast of inflation and conduct a more efficient monetary policy.
This work presents a VARX model applied to data from 2003 to 2021. Statistically significant impact of world food prices on domestic consumer and producer food prices in Russia was observed in 2003-2014, both at nation level and across its regions. After 2014, when there was a transition to a floating exchange rate, inflation targeting policy, accelerated development of import-substituting agricultural production and the Russian government employment of a more active trade policy in agriculture and food products, the average pass-through effect declined materially and is no longer statistically significant.
The overall pass-through effect is greater in the case of rising world prices compared to decreasing world prices, while no statistically significant differences are found among regions. Meanwhile, the pass-through effect of world food prices on internal producer prices exhibits a significant regional heterogeneity.