Commodity prices, inflation and inflation uncertainty among emerging economies

Abstract

PurposeThis paper examines the role price fluctuations associated with internationally traded commodities play in inflationary conditions and inflation uncertainty among economies in Sub-Saharan Africa.Design/methodology/approachUsing a panel 32 countries from the sub-region from 1996 to 2019, this study employed Two-Step System Generalized Method of Moments (GMM) estimation technique in its analysis.FindingsEmpirical evidence demonstrates that fluctuations in forex-adjusted price of crude oil, gold and cocoa have significant positive impact on inflation while forex-adjusted changes in price of cotton tend to have significant negative influence on consumer price inflation among economies in the sub-region. Additionally, the study found that gold, cocoa and cotton price changes on the international market have significant positive impact on inflation uncertainty in the sub-region (rise in price leads to increase rate of inflation uncertainty). Furthermore, improved regulatory quality and growth in output growth (GDP per capita growth) were found to help in stabilizing inflation uncertainty (reduce inflation uncertainty) among economies in the sub-region during periods of persistent growth in general price levels.Originality/valueThe study present a different approach based on individual economy forex-adjusted global prices of internationally traded commodities instead of general prices often used in the literature and assessed the effects such adjusted commodity prices have on inflation and inflation uncertainty. Additionally, the moderating role of regulatory quality and output growth between surmised nexuses are also examined.

Understanding Global Commodity Price Shocks on Exchange Rates and Inflation in Emerging Economies: ARDL Perspective

“…Commodity prices, such as cocoa, oil, gold, petrol, and diesel, have a significant impact on inflation. Previous studies by Abaidoo & Agyapong [10], Shahrazi et al [7] showed that the fluctuations in the prices of these commodities can lead to an increase or decrease in consumer price inflation. The relationship between commodity prices and inflation is complex and varies across different countries and periods.…”

“…Furthermore, the specific channels through which commodity price shocks affect inflation in emerging economies are not well understood [10]. There is a need for more studies that examine the impact of commodity price fluctuations on a holistic measure of development, such as inflation, exchange rates, and general human development Index, in emerging economies.…”

“…The impact of globalization on inflation dynamics is also evident, with increased integration between developed economies and emerging countries leading to a direct impact on domestic inflation in emerging countries [8] Inflation in these countries can be influenced by disruptions in global trade channels, highlighting the structural nature of global inflation [9]. At the same time, commodity price shocks have been identified as major drivers of business cycles in emerging economies, such as Brazil, Chile, Colombia, and Peru [10]. Adopting inflationtargeting regimes in these economies has shown to be effective in coping with commodity price shocks, particularly in managing inflation and output gaps [11].…”

Global Inflation Problem and Macroeconomic Fluctuations in Sub-Sahara Africa Empirical Analysis of Inflation Shocks from Key Trading Partners

“…The high inflationary pressures are also reshaping monetary policy stances of central banks in many economies, especially the developed countries. This is because massive fiscal and monetary stimulus packages introduced to mitigate the impacts of anti-COVID 19 contributed to the current price level hike (Abaidoo & Agyapong, 2022). A key takeaway is that the current situation highlighted potent grievous macroeconomic implications for SSA economies owing to the currently strong trade, financial, technological and other linkages with the advanced economies.…”

Youth unemployment during economic shocks: Evidence from the metal-mining prices super cycle in Chile

“…Drechsel and Tenreyro (2018), for example, find that commodity price shocks positively contribute to growth in output, consumption, and investment in Argentina from 1900 to 2015. Abaidoo and Agyapong (2022) analyze the effect that fluctuations in prices of different commodities have on inflation, inflation uncertainty and political stability among emerging economies in Sub-Saharan Africa from 1996 to 2019. They find that volatility in the price of crude oil, copper, and coal negatively affects the political stability of this region, while volatility in the price of gold and natural gas have a positive effect on these same outcomes.…”