Abstract
The surge in global commodity prices in 2007-08 sent an inflationary shock across the world. The collapse in global prices in 2014 resulted in significant disinflation in many countries and even deflation in some countries. We have explored the linkages between global commodity prices’ fluctuations and inflation in a small open economy, Pakistan. Global price fluctuations are found to be dominant source of inflation in Pakistan during July 1992 to June 2014. Food inflation and overall inflation in Pakistan is linked to changes in international food prices. Increase in global oil price results in non-food and administered prices’ inflation in Pakistan. For core inflation, changes in global prices of metal and cotton matter most. Global commodity prices’ changes impact overall inflation in Pakistan rather quickly compared to impact of changes in monetary aggregates. Core inflation takes longer to respond to all types of shocks, including global prices’ fluctuations.
Keyword(s)
Global Commodity Prices, Exchange Rate, Money supply, Inflation Rate