The transmission of shocks to food and energy commodity prices to food inflation in the euro area*

We estimate how shocks to food and energy (fuel) commodity prices pass-through to food consumer prices in the euro area, where the current episode of substantial and persistent increase in food prices is unprecedented when looking at the past decades. We extend the workhorse food value-chain model of Ferrucci et al. (2012) to account for fuel prices and asymmetries. We show that there is a persistent and significant effect of shocks to food and energy commodity prices on food inflation that reaches a maximum at around 12 months after the shock. We also show that both types of shocks impact food consumer prices in an asymmetric way, with increases in prices having a significant, positive effect, while price decreases have a milder effect in the case of food commodities and a statistically non-significant effect in the case of energy commodities.