Key Elements of Global Inflation

Against the background of large fluctuations in world commodity prices and global growth, combined with ongoing structural changes relating to globalisation, this paper examines some of the key factors affecting global inflation. The paper investigates the effects of shocks affecting relative prices and structural changes on global inflation by: estimating a global vector autoregression (GVAR) to examine how oil price shocks feed through to core and headline inflation; calculating the impact of increased imports from low-cost countries on manufacturing import prices; and estimating Phillips curves in order to shed light on whether the inflationary process in OECD countries has changed over time, particularly with respect to the roles of import prices, unit labour costs and the output gap. Overall, the paper finds that there seem to be various significant pressures on global trade prices and labour markets associated with structural factors. These are possibly partly due to globalisation which, in addition to changes in monetary policy, seem to be behind some of the changes in the inflation process over the period examined in this paper.