Food inflation and monetary policy in emerging economies

Abstract

The rising inflationary pressure has been linked with supply-side disruptions and rising energy and food prices against the background of the COVID-19 pandemic and the Russia-Ukraine crisis. This paper investigates the role of monetary policy in stabilizing food inflation in emerging economies (India, China, Brazil, Russia, and South Africa). We also investigate the causal linkage between monetary policy and food inflation using frequency domain-based Granger causality and find strong feedback causal effects between food inflation and monetary policy changes. Our results are robust to different estimation methodologies, possible asymmetry, and alternative model specifications, which include climate change. While oil prices, world food prices, and exchange rates have heterogeneous effects on domestic food inflation, a contractionary monetary policy stance leads to a decline in domestic food inflation in all countries. Thus, we provide strong evidence that well-coordinated macroeconomic policies in emerging economies are essential for stabilizing food inflation.