Impact of Energy and Food Price Inflation - IMF

Commodity price inflation is the cause of serious hardship, especially in poorer countries, but the International Monetary Fund warns against measures to insulate consumers from its effects.

In a new analysis of the macroenomic effects of higher oil and food prices, the IMF suggests a number of approaches to mitigating the effects without distorting trade or creating other imbalances. The IMF notes that possible further increases in food and fuel prices in 2008 and 2009 suggest that a large number of countries are likely to encounter significant strains on their balance of payments.

Among the IMF’s findings and recommendations:

• To promote efficiency and sound fiscal policy, and avoid negative international spillovers, commodity prices should be passed through to consumers and producers.
• The impact of higher fuel and food prices on the most vulnerable groups, particularly in low-income countries, should be cushioned.
• The first-round effects of higher food and fuel prices on inflation should generally be accommodated.
• At the same time, monetary policy should be sufficiently tight to prevent the first-round effects of higher food and fuel prices on inflation from spilling over to higher prices of other goods and services
• To the extent that they are regarded as permanent, the food and fuel price
  shocks would call for a real effective exchange rate depreciation for net importers.
• Global food markets need to be kept open
• An ambitious Doha Round conclusion, including on agriculture, can help broaden and stabilize international food trade
• Biofuel subsidies should be carefully re-examined, especially in developed countries.

The full analysis Food and Fuel Prices—Recent Developments,
Macroeconomic Impact, and Policy Responses is available free of charge.