Food and inflation - the weights make a difference

Inflation in emerging markets is outstripping the increases in the developed world. This must be caused by their strong growth. Not exactly. If you look at the weights for food in the CPI indices of many countries, you will see wide divergences Food is over two times as important in the Indian CPI than in the US. Consequently, if there is a shock to food prices, there will be a greater increase in inflation for some countries. Emerging markets will generally have higher food weights, so for the same food price shock there will be a greater increase in headline inflation.

This also means that the link between commodity prices and inflation will be stronger with emerging markets. Commodities will play a more important role as an inflation hedge in these countries.