IMF Working Papers

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

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

October 22, 2024

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Jorge Miranda-Pinto, Andrea Pescatori, Martin Stuermer, and Xueliang Wang. "Beyond Energy: Inflationary Effects of Metals Price Shocks in Production Networks", IMF Working Papers 2024, 215 (2024), accessed December 21, 2024, https://doi.org/10.5089/9798400291630.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Commodities, Economic theory, Inflation, Metal prices, Metals, Oil, Oil prices, Oil production, Prices, Production, Supply shocks

Keywords: Global, Inflation, Inflation, International macroeconomics, Metal prices, Metals, Metals, Oil, Oil prices, Oil production, Production networks, Supply shocks, Supply shocks.

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