This report updates the macroeconomic assessment of the impact of global food and fuel price increases provided in the IMF June 2008 Board paper: Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Response. Food and oil prices peaked in early summer—in particular, oil prices surged to levels envisaged under the most adverse scenario presented in the June paper. Against this background, the effects of higher prices on the balance of payments, budgets, and domestic prices intensified and a large group of low- and middle-income countries is experiencing a substantial weakening of their balance of payments and higher inflation. These findings reinforce the importance of adopting appropriate policies to maintain macroeconomic stability while protecting the poor.

This report provides a first broad assessment of the impact of the surge in food and fuel prices on the balance of payments, budgets, prices, and poverty of a large sample of countries. It reviews countries’ macroeconomic policy responses to date and also discusses Fund advice for managing the price increases. Policies should (i) ensure that food and finance reaches the most affected countries as quickly as possible, (ii) include targeted and scaled-up social measures, and (iii) avoid high costs in terms of macroeconomic instability or loss in future agricultural production. Collaborating with international partners, the Fund also stands ready to provide balance of payments assistance. As the paper presents an initial assessment of a still-evolving situation, the somewhat tentative nature of the analysis should be borne in mind.

This paper investigates the response of consumer price inflation to changes in domestic fuel prices, looking at the different categories of the overall consumer price index (CPI). We then combine household survey data with the CPI components to construct a CPI index for the poorest and richest income quintiles with the view to assess the distributional impact of the pass-through. To undertake this analysis, the paper provides an update to the Global Monthly Retail Fuel Price Database, expanding the product coverage to premium and regular fuels, the time dimension to December 2020, and the sample to 190 countries. Three key findings stand out. First, the response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies. Second, we show that past studies using crude oil prices instead of retail fuel prices to estimate the pass-through to inflation significantly underestimate it. Third, while the purchasing power of all households declines as fuel prices increase, the distributional impact is progressive. But the progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.

The sharp drop in oil prices is one of the most important global economic developments over the past year. The SDN finds that (i) supply factors have played a somewhat larger role than demand factors in driving the oil price drop, (ii) a substantial part of the price decline is expected to persist into the medium term, although there is large uncertainty, (iii) lower oil prices will support global growth, (iv) the sharp oil price drop could still trigger financial strains, and (v) policy responses should depend on the terms-of-trade impact, fiscal and external vulnerabilities, and domestic cyclical position.

Dramatic increases in food prices, as witnessed on a global scale in recent years, threaten the food security of hundreds of millions of the rural poor in Sub-Saharan Africa alone. This book focuses on recent food and financial crises as they have affected Africa, illustrating the problems using country case studies, that cover their origins, effects on agriculture and rural poverty, their underlying factors and making recommendations as to how such crises could best be addressed in the future.

The recent spike in food prices has led to a renewal of interest in agricultural issues and in the long-term drivers of food prices. Urbanization has been mentioned as one possible cause of higher food prices. In this paper we examine some of the links through which urbanization is considered to be contributing to higher food prices and conclude that in most cases urbanization is being conflated with other long-term processes, such as economic growth, population growth and environmental degradation, which can more fruitfully be seen as related but separate processes. We discuss long- and-short term factors affecting food prices, and conclude that the one important way in which urbanization in poor countries may affect food prices, at least potentially, is that it increases the number of households who depend on commercial food supplies, rather than own production, as their main source and hence are likely to hoard food if they fear future price increases. The best policy option for managing this is larger food reserves. Attempts to curb urbanization, on the other hand, would be ill advised.

This paper analyzes the monetary policy response to rising inflation in emerging and developing countries associated with the food and oil price shocks in 2007 and the first half of 2008. It reviews inflation developments in a sample of countries covering all regions and a broad range of monetary and exchange rate policy regimes; discusses the underlying causes of inflation; provides a synthesis of policy responses taken against the background of the conflicting objectives and trade-offs, the uncertainties regarding the nature of the shocks, and the additional challenges brought on by the global financial turmoil; and presents considerations for policy.