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Abstract

This paper investigates responses of domestic food prices to world commodity markets regarding current concern of the UK commodity-driven food inflation. In the empirical analysis, we extend existing studies by using monthly data covering major developed (the US, the UK and Australia) and emerging markets (BRICS and Pakistan) for various commodities over the last 30 years. We also contribute to the literature by considering endogenous structural break in the pass-through analysis. Our results brings useful facts for further discussion and comparison. Regarding agricultural-type commodities, strong pass-through is found in major emerging markets except India, where China and Pakistan shows relatively large pass-through. While the US pass-through is similar to the one in the literature, the UK is found to have a much smaller and weakly significant pass-through. Differently, Australia food price responds to non-agricultural commodities instead. Considering structural break has a mixed impact on the estimated pass-through coefficients but the main conclusions are generally unchanged. The results are vital for a country’s monetary policy and target of food inflation from both short- and long-term perspective.

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