Beyond Energy: Inflationary Effects of Metals Price Shocks in Production Networks

Jorge Miranda-Pinto, Andrea Pescatori, Martin Stuermer and Xueliang Wang

No 2024/215, IMF Working Papers from International Monetary Fund

Abstract: We examine the role of metals as economic inputs by using a production network model, calibrated for various countries using input-output (I-O) tables. Empirically, we employ local projections to study how metal shocks influence inflation, testing country-level heterogeneity in the sensitivity to these shocks. Our findings indicate that metals price shocks have significant and persistent effects on core and headline inflation, with particularly pronounced effects on countries that are highly exposed to metals in their production networks. This is in contrasts to oil supply shocks, which predominantly affect headline inflation. A shift of the global economy towards a higher relative metals intensity due to the energy transition could lead to commodity price shocks increasingly influencing core rather than headline inflation. This could make commodity price shocks less visible on impact but more persistent. Central banks should consider this shift when assessing inflation dynamics and risks.

Keywords: International macroeconomics; inflation; metals; production networks; supply shocks.; inflation dynamics; metal shock; metals price shock; production network model; price shock; core CPI inflation; GDP deflator; Metal prices; Supply shocks; Global (search for similar items in EconPapers)
Pages: 44
Date: 2024-10-22
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