Inflation comovement in emerging economies: The facts and impact of global prices

Abstract

The traditional notion that inflation is a domestic monetary phenomenon has been challenged by the existence of global inflationary factors that cause inflation comovement patterns. Understanding and estimating such comovement and its drivers is critical for effective policymaking. This study analyzes the temporal pattern and determining factors of inflation comovement of Commonwealth of Independent States (CIS) countries, comparing it to other former Eastern Bloc economies that entered the European Union (EU), and to other groups of advanced economies. We use monthly data on 26 countries classified into four groups and examine headline, core, food and utilities inflation from December 2006 to October 2021. We find that inflation comovement increased over the study period for all inflation categories, except food inflation, for all groups of countries, with comovement in CIS countries being the lowest. Moreover, positive changes in global energy prices significantly impact CIS inflation comovement, but not negative changes.