Food Prices and Inflation

• Author: James P. Walsh
• Pages: 1-5

IMF

Volume 13, Number 1 March 2012

www.imf.org/researchbulletin

B U L L E T I N

1

Food Prices and Inflation

James P. Walsh

High global food inflat ion, leading in many countries to

headline infl ation rising above core for a sustained period of

time, has led policy makers to question the conventional wisdom

of accommodating food price sho cks. The issue is particularly

important for emerging and de veloping economies, where food

weighs heavily in the consumption ba sket. Research at the

International Monetary Fund ha s approached this issue from a variety of angles .

First, given its high level and impor tant second round effects, excluding food

inflation from t raditionally defined core mea sures may not be justifiable in many

countries. Second , strict core inflation targeting may not be optimal when ma ny

credit-constrained consume rs operate at a near-subsistence level. Finally, when

global food prices cove r a large share of the consumption bask et, food shocks can

have significant ef fects on the terms of trade a nd real effective ex change rate,

weakening the case for their ex clusion from monetary policy decisions.

e rapid rise in food prices since 20 03 has faced policymakers wit h a dif-

cult predicament. In genera l, the high volatility of food inat ion complicates

monetary policy dec ision making by obscuring underlyi ng signals about ina-

Foreign Direct Investment and the Crisis:

Is This Time Different?

Yuko Kinoshita

During the global financial crisis, foreign direct investment (FDI)

turned out to be less resilient than in past crises. It is important to

go beyond aggregate measure of FDI and look at the composition

to make an assessment of its effects on the host country: FDI in

the tradable and nontradable sectors have different implications

on economic growth and volatility. This article surveys recent IMF

research on FDI and its effects on external vulnerabilities and volatility in the global

financial crisis.

Foreign direct investment (FDI) is general ly considered to be the most stable

form of capital ow in a time of dist ress (Kose and others, 2006; Prasad, R ajan,

and Subramanian, 2 007; and Tong and Wei, 2010). FDI is also known to bring

various benets to the host count ry by transferring new technology a nd know-

how and raising productivit y and economic growth.

(continued on page 4)

In This Issue

1 Foreign Direct Investment

and the Crisis: Is This

Time Different?

1 Food Prices and Ination

6 Q&A: Seven Questions

on Unemployment

through the Prism of

the Great Recession

10 Conversations with

Visiting Scholars

12 IMF Working Papers

13 Visiting Scholars

18 IMF Economic Review

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Research Summaries