## 2. Local projection baseline estimates

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---

### I. Introduction — context and objectives
- CEMAC experienced overlapping inflationary shocks since the end of the pandemic; inflation peaked at 6.7 percent at end-2022, more than twice the regional convergence criterion of 3 percent.
- Inflation surged more quickly and persistently during 2021–23 and converged closer to peers.
- Key research questions:
  - To what extent have inflationary pressures broadened?
  - How important are global factors in explaining inflation dynamics?
  - How persistent are global price shocks?
  - What are the policy implications?

### Main empirical conclusions
- Measures of underlying inflation and diffusion indicate price pressures were broad-based during 2021-2022, suggesting persistence.
- Global price shocks play a prominent role in explaining inflation dynamics in CEMAC:
  - Global commodity food and oil price fluctuations, and supply chain disruptions (proxied by shipping costs) explain large variability in headline inflation—deviation from its long-term average—before, during the pandemic, and through the recovery.
  - Contributions of domestic economic slack and long-term inflation expectations (proxied by the five-year ahead forecast for CPI inflation) were relatively small.
- Persistence and pass-through magnitudes (local projection results summarized in the paper):
  - A one standard deviation increase in global commodity food prices has a peak impact on headline inflation of around 2 percentage points after six quarters.
  - A one standard deviation increase in oil prices is associated with a 1 percentage point increase in headline inflation after half a year.
  - A one standard deviation increase in global shipping costs has a peak effect of around 1.3 percentage points after two years.
- Policy implication emphasized:
  - The central bank should not “look through” global price shocks, especially commodity food prices, because of their large share in consumption baskets, strong volatility, and persistence which can feed into inflation expectations and second-round effects.

### II. Recent inflation developments in CEMAC
- Headline inflation timeline and peak:
  - Headline inflation accelerated at end-2021, doubled in 2022, exceeded 3 percent in early 2022.
  - Peaked in November 2022 at 7.6 percent year-on-year (y-o-y).
  - Moderated in early 2023 to 6.0 percent y-o-y in the second quarter.
- Drivers of the surge:
  - Food and transport were the main drivers, comprising around three-quarters of headline inflation in Q2 2023 and accounting for more than two-thirds of the increase compared to two years earlier.
  - “Housing, water and energy” contributed about 0.42 percentage points over the same period.
- Global shocks that precipitated the surge:
  - Pandemic-related supply disruptions and rapid global recovery raised international commodity and oil prices.
  - Global shipping costs and freight indices reached multidecade highs.
  - The Global Supply Chain Pressure Index (GSCPI) rose to a record level in December 2021.
  - Global food commodity price index surged in second half of 2021 and peaked in June 2022 at its highest level since inception in 1992.

### III. How widespread are inflationary pressures?
- Tradable vs. non-tradable inflation:
  - Tradable components rose steeply since end-2021, but less sharply than food inflation.
  - Non-tradable inflation accelerated more gradually with a lag; moderation in utilities and energy partly related to subsidies and price controls.
- Distribution of CPI component inflation (unit-count of 12 components, latest obs June 2023):
  - Share of items with inflation above 5 percent increased to about one third of the CPI basket in June 2023, from zero percent at end-2021.
  - Share of items with inflation below zero disappeared between end-2021 and June 2023.
  - Share of items with inflation between 3 percent and 5 percent tripled since end-2021 to about 25 percent in June 2023.
  - Share of items with inflation above the 3 percent convergence criterion rose to close to two-thirds from zero percent in the second half of 2021.

### IV. Underlying inflation measures
- Rationale:
  - Food represents about 40 percent of CPI on average; energy about 9 percent; excluding these could understate medium-term effects.
- Two families of underlying measures:
  - Permanent exclusion-based measures (e.g., core excluding food and transport): rose more than threefold since mid-2021, peaking at around 4 percent in March 2023 and hovering around that level in Q2 2023.
  - Temporary exclusion measures (trimmed mean, weighted median): show broad-based inflation dynamics.
- Specific trimmed/median statistics (latest obs June 2023):
  - 20 percent trimmed mean CPI inflation increased by 4 percentage points between end-2021 and June 2023, standing at 5.3 percent in June 2023.
  - Weighted median rose by 2.7 percentage points over the same period, standing at 3.9 percent in June 2023.

### V. Phillips curve framework for CEMAC — model and data
- Benchmark hybrid New-Keynesian Phillips curve specification (quarterly, year-on-year inflation):
  - π_t = ρ π^e_t + γ π_{t-1} + β x^d_{t-1} + θ Z_{t-l}^f + ε_t
  - Extended specification includes global slack x^g_t: π_t = ρ π^e_t + γ π_{t-1} + β x^d_{t-1} + θ Z_{t-l}^f + δ x^g_t + ε_t
- Variable construction:
  - Dependent variable: Harmonized Index of Consumer Prices (HICP) for the six CEMAC countries; regional aggregate is arithmetic average weighted by country shares of final household consumption; monthly data converted to quarterly by averaging three months.
  - Domestic slack: output gap = deviation of real GDP from HP trend; annual real GDP interpolated to quarterly via quadratic match method.
  - Inflation expectations: five-year-ahead CPI inflation forecasts from IMF WEO; forecasts hover around 2.5 to 3 percent; annual forecasts interpolated to quarterly via quadratic match.
  - Global factors: oil prices, non-energy commodity and food price indices converted to domestic currency using bilateral exchange rates vs USD; Baltic Dry Index changes used as proxy for global shipping costs; global output gap computed as difference between global real GDP and its HP trend.

### VI. Baseline Phillips curve results (overview)
- Estimation sample: quarterly data 2001Q1–2022Q4.
- Standard hybrid Phillips curve estimates:
  - All coefficients have expected signs and are significant at the 5 percent level.
  - Magnitudes:
    - A 1 percentage point increase in five-year-ahead inflation expectations leads to a 0.17 percentage point increase in current inflation.
    - An improvement of 1 percentage point in the domestic output gap is associated with a 0.18 percentage point increase in inflation.
    - Inflation is highly persistent; lagged inflation terms are highly significant with the largest coefficient.
- Global supply shocks:
  - Oil prices, food commodity prices, and shipping costs are all significantly correlated with higher headline inflation.
  - Coefficient for food commodity prices is larger than for oil prices and shipping costs.

### VII. Local projection — baseline impulse responses (selected quantitative impacts)
- Note: impacts reported are in percentage points; robust standard errors in parentheses; significance: * p < 0.05, ** p < 0.01, *** p < 0.001.

- Oil (impact on headline inflation by horizon h):
  - h = 0: 0.0126 (0.00487) *
  - h = 1: 0.0241 (0.0101) *
  - h = 2: 0.0244 (0.0125)
  - h = 3: 0.0178 (0.0131)
  - h = 4: 0.00429 (0.0144)
  - h = 5: -0.0101 (0.0152)
  - h = 6: -0.0180 (0.0156)
  - h = 7: -0.0163 (0.0153)

- Food (impact on headline inflation by horizon h):
  - h = 0: 0.0101 (0.0146)
  - h = 1: 0.0180 (0.0269)
  - h = 2: 0.0510 (0.0351)
  - h = 3: 0.0881 (0.0380) *
  - h = 4: 0.119 (0.0407) **
  - h = 5: 0.133 (0.0406) **
  - h = 6: 0.128 (0.0425) **
  - h = 7: 0.0956 (0.0395) *

- Shipping costs (impact on headline inflation by horizon h):
  - h = 0: -0.00286 (0.00227)
  - h = 1: -0.00178 (0.00348)
  - h = 2: 0.00283 (0.00407)
  - h = 3: 0.00679 (0.00431)
  - h = 4: 0.0104 (0.00455) *
  - h = 5: 0.0144 (0.00477) **
  - h = 6: 0.0161 (0.00485) **
  - h = 7: 0.0161 (0.00465) ***

- Non-fuel commodity (impact on headline inflation by horizon h):
  - h = 0: -0.0155 (0.0125)
  - h = 1: -0.0244 (0.0225)
  - h = 2: -0.00955 (0.0312)
  - h = 3: 0.0199 (0.0354)
  - h = 4: 0.0600 (0.0342)
  - h = 5: 0.0919 (0.0279) **
  - h = 6: 0.124 (0.0257) ***
  - h = 7: 0.140 (0.0306) ***

- Rescaled impulse-response magnitudes (one standard deviation shocks):
  - Oil prices: ≈ 1 percentage point increase in headline inflation two quarters after the shock; effect significant first three quarters and fades after about 1.5 years.
  - Global commodity food prices: ≈ 1.9 percentage points after four quarters, peaking at 2.1 percentage points after six quarters; response significant up to two years.
  - Shipping costs: ≈ 1.2 percentage points after six quarters, peaking at around 1.3 percentage points after two years; persistent and significant after two years.
  - Non-energy commodity prices: ≈ 2.3 percentage points after six quarters and about 2.6 percentage points after eight quarters; gradual and persistent.

### VIII. Decomposition of inflation dynamics (sub-periods)
- Decomposition for deviations of headline inflation from its long-term average over three sub-periods:
  - Pre-pandemic (Q1 2015–Q4 2019): headline inflation dropped below its long-term average; global prices were main drivers of the decline; domestic cyclical conditions exerted upward pressures.
  - Pandemic crisis (Q1 2020–Q2 2021): global prices (oil and food, and shipping costs) were main contributors to deviations; domestic slack exerted deflationary pressures.
  - Post-pandemic recovery (Q3 2021–Q4 2022): headline inflation soared above its long-term mean; global prices and shipping costs were major contributors; domestic factors contributed relatively little.
- Residuals: decomposition shows a substantial contribution from unexplained factors (model residuals) during the pandemic crisis and, to a lesser extent, the post-pandemic recovery.

### IX. Robustness and alternative specifications
- Alternative external price pressure measures (OECD PPI; OECD PPI relative to GDP deflator; China PPI) are significant only when oil and food prices are not included, implying these measures capture oil and food effects.
- Alternative measures of global slack are insignificant; main findings unchanged.
- Inflation expectations horizon: three-year-ahead vs five-year-ahead produces broadly similar results; three-year-ahead expectations become insignificant with inclusion of shipping costs.
- Domestic slack alternative (cyclical unemployment) yields insignificant coefficients; global price variables remain significant.
- Pre-pandemic sample (ending 2019Q4) and different lag lengths produce broadly similar impulse-response patterns.
- Key coefficient magnitudes preserved across robustness checks:
  - Lag 1 of CPI inflation coefficients examples: 0.791***, 0.822***, 0.800***, 0.818***.
  - 5-year-ahead inflation expectations examples: 0.188**, 0.107, 0.182**, 0.105, 0.196**, 0.105, 0.189**, 0.104.
  - Lag 1 of change in oil prices examples: 0.00844**, 0.00955**, 0.00848**, 0.00960**.
  - Lag 2 of change in food prices examples: 0.0306**, 0.0309**, 0.0310***, 0.0314***.
  - Lag 2 of change in shipping costs examples: 0.00630***, 0.00390***, 0.00610***, 0.00385***.
- R-squared values across robustness tables range from 0.891 to 0.929.
- Observations: 87 in multiple robustness tables.

### X. Interpretation and mechanisms
- Larger and more persistent pass-through from global commodity food price shocks partly reflects the relatively large share of food in consumption baskets across CEMAC economies and larger second-round effects on costs and wages.
- Lower pass-through from oil prices may reflect mitigation via fuel subsidies at the pump in all CEMAC countries.
- Slow build-up of shipping-cost pass-through is consistent with delivery lags and firms taking time to pass on higher global costs to consumers.

### XI. Policy implications and recommendations
- Monetary policy should react to persistent global food price shocks to prevent increases in inflation expectations and second-round effects through wages and prices.
- Central bank should not “look through” global commodity food price shocks given their volatility, persistence, and weight in consumption baskets.
- Early policy actions were warranted during the 2021–22 surge because overlapping global shocks complicated real-time diagnostics.
- Policymakers should anticipate that phasing out energy subsidies will likely raise domestic energy costs and exert additional upward pressure on inflation.
- Continued empirical work is advised to quantify second-round effects and the transmission speed from food prices to cost and wage pressures in the CEMAC region.

### XII. Selected data definitions and sources
- CEMAC headline HICP: Harmonized Index of Consumer Prices (HICP) (2018=100). Monthly; quarterly average. Source: BEAC.
- CEMAC real GDP: Real GDP-weighted. Annual; interpolated to quarterly. Source: IMF World Economic Outlook; IMF staff calculations.
- Commodity food prices: World food index (2016=100), USD. Monthly; quarterly average. Source: Datastream, IMF.
- Oil prices: Brent crude oil price in USD. Daily; quarterly average. Source: Datastream.
- Inflation Expectations: 5-year-ahead and 3-year-ahead forecasts for CPI inflation. Annual; interpolated to quarterly. Source: IMF, from historical WEO forecasts.
- Baltic Dry Index: Daily; quarterly average. Source: Datastream.
- China PPI: Quarterly. Source: National Bureau of Statistics of China.
- XAF/USD exchange rate: National Currency Per USD, XAF. Monthly; quarterly average. Source: IMF, IFS.
- World industrial production gap: Monthly; quarterly average. Source: Netherlands Bureau for Economic Policy Analysis (CPB); and IMF staff calculations.

*Source: wpiea2024055-print-pdf — IMF Working Paper (section: 2. Local projection baseline estimates).*

### References .............................................................................................................

### References

### Annexes
- Annex I. Robustness Tests ...................................................................................................................... 26
  - A.  Robustness tests: Phillips curve estimation ................................................................................... 26
  - B.  Robustness tests: Local projection estimation ............................................................................... 29
- Annex II. Food and Energy Inflation across Regions ............................................................................ 32
- Annex III. Decomposition of Inflation ...................................................................................................... 34
- Annex IV. Data Definitions and Sources ................................................................................................. 35

### Figures
- 1. Inflation Dynamics in CEMAC ........................................................................................................................... 7
- 2. Global Inflation Pressures ................................................................................................................................. 8
- 3. Diffusion of Inflation ........................................................................................................................................... 9
- 4. Underlying Inflation ......................................................................................................................................... 10
- 5. Contributions to Inflation Dynamics ................................................................................................................. 16
- 6. Impulse Responses–Baseline Specification: Global Shocks .......................................................................... 20
- A.1. Impulse Responses–Robustness Test: Pre-pandemic Sample ................................................................... 29
- A.2. Impulse Responses of Headline Inflation to a One Standard Deviation Shock on Global Prices — Robustness Test: Different Lag Lengths ............................................................................................................. 30
- A.3. Impulse Responses — Baseline Specification: Exchange Rate and Demand Output Gap ......................... 31
- A.4. Food and Energy Inflation across Regions .................................................................................................. 32
- A.5. Robustness Check: Energy Subsidies ......................................................................................................... 33
- A.6. Decomposition of Inflation ........................................................................................................................... 34

### Tables
- 1. Hybrid Phillips Curve Estimation ..................................................................................................................... 14

*Source: wpiea2024055-print-pdf - References (IMF Working Paper).*

### 2. Local projection baseline estimates .................................................................................

### 2. Local projection baseline estimates

### I. Introduction — context and objectives
- CEMAC experienced overlapping inflationary shocks since the end of the pandemic; inflation peaked at 6.7 percent at end-2022, more than twice the regional convergence criterion of 3 percent.
- Inflation surged more quickly and persistently during 2021–23 and converged closer to peers.
- Key research questions:
  - To what extent have inflationary pressures broadened?
  - How important are global factors in explaining inflation dynamics?
  - How persistent are global price shocks?
  - What are the policy implications?

### Main empirical conclusions (from the paper)
- Measures of underlying inflation and diffusion indicate price pressures were broad-based during 2021-2022, suggesting persistence.
- Global price shocks play a prominent role in explaining inflation dynamics in CEMAC:
  - Global commodity food and oil price fluctuations, and supply chain disruptions (proxied by shipping costs) explain large variability in headline inflation—deviation from its long-term average—before, during the pandemic, and through the recovery.
  - Contributions of domestic economic slack and long-term inflation expectations (proxied by the five-year ahead forecast for CPI inflation) were relatively small.
- Persistence and pass-through magnitudes (local projection results summarized in the introduction):
  - A one standard deviation increase in global commodity food prices has a peak impact on headline inflation of around 2 percentage points after six quarters.
  - A one standard deviation increase in oil prices is associated with a 1 percentage point increase in headline inflation after half a year.
  - A one standard deviation increase in global shipping costs has a peak effect of around 1.3 percentage points after two years.
- Policy implication emphasized:
  - The central bank should not “look through” global price shocks, especially commodity food prices, because of their large share in consumption baskets, strong volatility, and persistence which can feed into inflation expectations and second-round effects.

### II. Recent inflation developments in CEMAC
- Headline inflation timeline and peak:
  - Headline inflation accelerated at end-2021, doubled in 2022, exceeded 3 percent in early 2022.
  - Peaked in November 2022 at 7.6 percent year-on-year (y-o-y).
  - Moderated in early 2023 to 6.0 percent y-o-y in the second quarter.
- Drivers of the surge:
  - Food and transport were the main drivers, comprising around three-quarters of headline inflation in Q2 2023 and accounting for more than two-thirds of the increase compared to two years earlier.
  - “Housing, water and energy” contributed about 0.42 percentage points over the same period.

### Global shocks that precipitated the surge
- Pandemic-related supply disruptions and rapid global recovery raised international commodity and oil prices.
- Global shipping costs and freight indices reached multidecade highs (e.g., Baltic Exchange Dry Index, Freightos Global Container Index, Harpex).
- The Global Supply Chain Pressure Index (GSCPI) rose to a record level in December 2021.
- Global food commodity price index surged in second half of 2021 and peaked in June 2022 at its highest level since inception in 1992.

### III. How widespread are inflationary pressures?
- Tradable vs. non-tradable inflation:
  - Tradable components (alcoholic beverages, clothing, household furnishing, transport, other items) rose steeply since end-2021, but less sharply than food inflation.
  - Non-tradable inflation (housing, health, communication, education, restaurants, recreation) accelerated more gradually with a lag, consistent with delayed pass-through; moderation in utilities and energy partly related to subsidies and price controls.
- Distribution of CPI component inflation (unit-count of 12 components, latest obs June 2023):
  - Share of items with inflation above 5 percent increased to about one third of the CPI basket in June 2023, from zero percent at end-2021.
  - Share of items with inflation below zero disappeared between end-2021 and June 2023.
  - Share of items with inflation between 3 percent and 5 percent tripled since end-2021 to about 25 percent in June 2023.
  - Share of items with inflation above the 3 percent convergence criterion rose to close to two-thirds from zero percent in the second half of 2021.

### IV. Underlying inflation measures
- Rationale for using multiple core measures: food represents about 40 percent of CPI on average; energy about 9 percent; excluding these could understate medium-term effects.
- Two families of underlying inflation measures:
  - Permanent exclusion-based measures (commonly exclude food and transport): core excluding food and transport rose more than threefold since mid-2021, peaking at around 4 percent in March 2023 and hovering around that level in Q2 2023.
  - Temporary exclusion measures (trimmed mean, weighted median): these show broad-based inflation dynamics.
- Specific trimmed/median statistics (latest obs June 2023):
  - 20 percent trimmed mean CPI inflation increased by 4 percentage points between end-2021 and June 2023, standing at 5.3 percent in June 2023.
  - Weighted median rose by 2.7 percentage points over the same period, standing at 3.9 percent in June 2023.

### V. Phillips curve framework for CEMAC — model and data
- Benchmark hybrid New-Keynesian Phillips curve specification (quarterly, year-on-year inflation):
  - π_t = ρ π^e_t + γ π_{t-1} + β x^d_{t-1} + θ Z_{t-l}^f + ε_t
  - Extended specification includes global slack (foreign output gap) x^g_t:
    - π_t = ρ π^e_t + γ π_{t-1} + β x^d_{t-1} + θ Z_{t-l}^f + δ x^g_t + ε_t
- Variable definitions and construction:
  - Dependent variable: Harmonized Index of Consumer Prices (HICP) for the six CEMAC countries; regional aggregate is arithmetic average weighted by country shares of final household consumption; monthly data converted to quarterly by averaging three months.
  - Domestic slack: output gap = deviation of real GDP from HP trend; annual real GDP interpolated to quarterly via quadratic match method.
  - Inflation expectations: five-year-ahead CPI inflation forecasts from IMF WEO, aggregated similarly; forecasts hover around 2.5 to 3 percent (close to the 3 percent convergence criterion); annual forecasts interpolated to quarterly via quadratic match.
  - Global factors: multiple global price indicators converted to domestic currency using bilateral exchange rates vs USD — year-on-year changes in oil prices, non-energy commodity and food price indices; Baltic Dry Index changes used as proxy for global shipping costs; global output gap computed as difference between global real GDP and its HP trend; annual global GDP interpolated to quarterly via quadratic match.

### VI. Baseline Phillips curve results (overview)
- Estimation sample: quarterly data 2001Q1–2022Q4.
- Standard hybrid Phillips curve estimates (column (1) summary):
  - All coefficients have expected signs and are significant at the 5 percent level.
  - Magnitudes reported in text:
    - A 1 percentage point increase in five-year-ahead inflation expectations leads to a 0.17 percentage point increase in current inflation.
    - An improvement of 1 percentage point in the domestic output gap is associated with a 0.18 percentage point increase in inflation.
    - Inflation is highly persistent; lagged inflation terms are highly significant with the largest coefficient.
- Global supply shocks:
  - Oil prices, food commodity prices, and shipping costs are all significantly correlated with higher headline inflation.
  - The coefficient for food commodity prices is larger than for oil prices and shipping costs.
  - Textual implication: an increase of 1 percentage point in global food price inflation over the last two quarters corresponds to a larger impact on domestic inflation than comparable oil or shipping shocks (see local projection summary above for quantified peak impacts).

### VII. Policy implications (summary)
- Given the large share of food in consumption baskets, strong volatility, and persistence of food price shocks, the central bank should not “look through” global commodity food price shocks.
- Central bank should closely monitor commodity price shocks and react to prevent inflation expectations from rising to avoid second-round effects on wages and prices that would affect medium-term inflation.
- The identification challenge in real time: distinguishing transitory versus persistent commodity price moves is difficult, particularly when multiple global shocks occur simultaneously.

*IMF Working Paper — section: 2. Local projection baseline estimates*

### 0.02 to  0.03 percentage point increase in headline inflation, while a 1-percentage point increase in oil

### Understanding Inflation Dynamics: The Role of Global Shocks in CEMAC

### Key findings
- Global price shocks are the most important drivers of large variability in headline inflation (deviation from its mean) over recent years; overall positive contributions during inflation spikes and negative contributions during disinflationary periods.
- Global prices of oil and food as well as shipping costs were the major contributors to the spike in headline inflation in the post-pandemic recovery period (2021–22).
- Domestic cyclical conditions had a modest and deflationary impact, with a negative contribution of domestic output gap.
- There is no evidence that global cyclical conditions (global output gap) have a direct impact on domestic inflation in CEMAC; the global output gap coefficient is insignificant in estimated hybrid Phillips curve specifications.
- Long-term inflation expectations made negligible contributions across sub-periods, suggesting expectations remained broadly stable (well-anchored).
- The decomposition shows a substantial contribution from unexplained factors (model residuals) to inflation developments during the pandemic crisis and, to a lesser extent, the post-pandemic recovery.

### Quantitative impacts and pass-through (from local projections and Phillips curve estimates)
- A 1-percentage point increase in inflation expectations or a 1-percentage point increase in oil prices/shipping costs in some specifications leads to small changes in headline inflation:
  - The text reports "0.02 to  0.03 percentage point increase in headline inflation, while a 1-percentage point increase in oil prices or shipping costs leads to less than 0.01 percentage point increase in inflation."
- Given the average sizes of commodity shocks, impacts can be large: standard deviation of food shocks is 35 percentage points and of oil shocks is 13 percentage points.
- Impulse-response magnitudes (one standard deviation shocks, rescaled IRFs):
  - Oil prices (Panel A): a one standard deviation shock in oil prices increases headline inflation by about 1 percentage point two quarters after the shock; the effect is statistically significant the first three quarters and effectively disappears after about one and a half years.
  - Global commodity food prices (Panel B): a one standard deviation rise is associated with an increase in headline inflation of about 1.9 percentage points after four quarters, peaking at 2.1 percentage points after six quarters. The response remains statistically significant two years after the shock.
  - Shipping costs (Panel C): a one standard deviation shock increases headline inflation by about 1.2 percentage points after six quarters, peaking at around 1.3 percentage points after two years; the effect is persistent and still statistically significant after two years.
  - Non-energy commodity prices (Panel D): a one standard deviation increase raises inflation by about 2.3 percentage points after six quarters and about 2.6 percentage points after eight quarters; the impact is gradual, persistent, and significant.

### Decomposition of inflation dynamics (sub-periods)
- Decomposition constructed for deviations of headline inflation from its long-term average over three sub-periods:
  - Pre-pandemic (Q1 2015–Q4 2019): headline inflation dropped below its long-term average; global prices were the main drivers of the decline, while domestic cyclical conditions exerted upward pressures.
  - Pandemic crisis (Q1 2020–Q2 2021): global prices (oil and food prices, and to a lesser extent shipping costs) were the main contributors to deviations; domestic slack exerted deflationary pressures.
  - Post-pandemic recovery (Q3 2021–Q4 2022): headline inflation soared above its long-term mean; global prices and shipping costs were major contributors, domestic factors contributed relatively little.
- Classification reinterpretation (Figures 5 panels C and D): global price factors (oil, food, shipping costs) dominated deviations from the long-term average; domestic factors (inflation expectations, domestic output gap) had relatively small contributions.

### Robustness and alternative specifications
- Alternative global external price measures (OECD PPI, OECD PPI relative to GDP deflator, China PPI) are significant only when oil and food prices are not included, implying these measures capture oil and food effects.
- Alternative measures of global slack (world output gap via OECD real GDP HP filter; cyclical component of world industrial production) are insignificant; main findings unchanged.
- Inflation expectations horizon: three-year-ahead instead of five-year-ahead produces broadly similar results; three-year-ahead expectations are significant in benchmark hybrid Phillips curve but become insignificant with inclusion of global shipping costs.
- Domestic slack alternative: cyclical unemployment (deviation from HP-filtered unemployment rate) yields insignificant coefficients for cyclical unemployment; global price variables remain significant when unemployment gap is used.
- Pre-pandemic sample (ending 2019Q4) and specifications with different lag lengths produce broadly similar impulse-response results; baseline conclusions robust.

### Interpretation and mechanisms
- The larger and more persistent pass-through from global commodity food price shocks partly reflects the relatively large share of food in consumption baskets across CEMAC economies and larger second-round effects on costs and wages.
- Lower pass-through from oil prices may reflect mitigation via fuel subsidies at the pump in all CEMAC countries.
- Slow build-up of shipping-cost pass-through is consistent with delivery lags and firms taking time to pass on higher global costs to consumers.

### Policy-relevant implications (from analysis)
- Persistent inflationary effects of commodity price shocks and supply chain disruptions are important drivers of inflation persistence in CEMAC, implying that global supply and price volatility can sustain elevated inflation domestically.
- Domestic factors (output gap, long-term inflation expectations) appear to play a smaller role in driving recent inflation dynamics in CEMAC; policy responses should account for the prominent role of global price shocks and their persistence.
- Mitigation mechanisms (for example, subsidies) can reduce pass-through but may not eliminate persistence from large global shocks; monitoring and targeted measures to address supply disruptions and global commodity volatility are important for inflation management.

*Source: IMF Working Paper — Understanding Inflation Dynamics: The Role of Global Shocks in CEMAC (excerpts from the provided PDF content).*

### 1.2 percentage points after six quarters, with a peak effect of around 1.3 percentage points after two

### wpiea2024055-print-pdf - 1.2 percentage points after six quarters, with a peak effect of around 1.3 percentage points after two

### Key findings on global shocks and inflation dynamics
- Global commodity food price shocks are "larger, more volatile and persistent," making them more likely to feed into inflation expectations and to propagate through wages and prices over the policy horizon.
- The central bank should not ignore global price shocks, especially commodity food prices and supply chain bottlenecks, and should closely monitor and react to prevent inflation expectations from rising in response to shocks that may be transitory but persistent.
- In the 2021–22 inflation surge, early policy actions were especially warranted given overlapping global shocks that complicated real-time diagnostics.
- Reforms to phase out energy subsidies across the region will likely lead to increased domestic energy costs and further upward pressures on inflation.
- Further research is recommended on second-round effects of global shocks in the CEMAC region to better understand persistent inflationary effects over the medium term, particularly how fast food prices impact cost and wage pressures.

### Local projection — baseline impulse responses (Table 2)
- Oil (impact on headline inflation in percentage points by horizon h):
  - h = 0: 0.0126 (0.00487) *
  - h = 1: 0.0241 (0.0101) *
  - h = 2: 0.0244 (0.0125)
  - h = 3: 0.0178 (0.0131)
  - h = 4: 0.00429 (0.0144)
  - h = 5: -0.0101 (0.0152)
  - h = 6: -0.0180 (0.0156)
  - h = 7: -0.0163 (0.0153)

- Food (impact on headline inflation in percentage points by horizon h):
  - h = 0: 0.0101 (0.0146)
  - h = 1: 0.0180 (0.0269)
  - h = 2: 0.0510 (0.0351)
  - h = 3: 0.0881 (0.0380) *
  - h = 4: 0.119 (0.0407) **
  - h = 5: 0.133 (0.0406) **
  - h = 6: 0.128 (0.0425) **
  - h = 7: 0.0956 (0.0395) *

- Shipping costs (impact on headline inflation in percentage points by horizon h):
  - h = 0: -0.00286 (0.00227)
  - h = 1: -0.00178 (0.00348)
  - h = 2: 0.00283 (0.00407)
  - h = 3: 0.00679 (0.00431)
  - h = 4: 0.0104 (0.00455) *
  - h = 5: 0.0144 (0.00477) **
  - h = 6: 0.0161 (0.00485) **
  - h = 7: 0.0161 (0.00465) ***

- Non-fuel commodity (impact on headline inflation in percentage points by horizon h):
  - h = 0: -0.0155 (0.0125)
  - h = 1: -0.0244 (0.0225)
  - h = 2: -0.00955 (0.0312)
  - h = 3: 0.0199 (0.0354)
  - h = 4: 0.0600 (0.0342)
  - h = 5: 0.0919 (0.0279) **
  - h = 6: 0.124 (0.0257) ***
  - h = 7: 0.140 (0.0306) ***

- Note: Robust standard errors in parentheses. Significance: * p < 0.05, ** p < 0.01, *** p < 0.001.

### Robustness tests — summary of results
- Alternative external price pressure measures (OECD PPI; relative price of imports; China PPI) and alternative measures of global slack (OECD output gap; world cyclical industrial production) yield consistent results that confirm the relevance of global price shocks for CEMAC inflation dynamics.
- Key coefficient magnitudes preserved across robustness checks:
  - Lag 1 of CPI inflation coefficients reported, e.g., 0.791***, 0.822***, 0.800***, 0.818***, etc., across specifications.
  - 5-year-ahead inflation expectations coefficients reported, e.g., 0.188**, 0.107, 0.182**, 0.105, 0.196**, 0.105, 0.189**, 0.104 (standard errors shown).
  - Lag 1 of change in oil prices shown as 0.00844**, 0.00955**, 0.00848**, 0.00960** (standard errors in parentheses).
  - Lag 2 of change in food prices shown as 0.0306**, 0.0309**, 0.0310***, 0.0314*** (standard errors in parentheses).
  - Lag 2 of change in shipping costs shown as 0.00630***, 0.00390***, 0.00610***, 0.00385*** in various specifications.
- R-squared values across robustness tables range from 0.891 to 0.929 depending on specification.
- Observations: 87 in multiple robustness tables; one table reports Observations 87 87 87 87 87 87 87 87 (presented as 8787878787878787 in source table formatting).

### Impulse response visual robustness (Annex figures)
- Figures present the impact of a one standard deviation increase in each global price shock on headline inflation; impulse responses reported in percentage points with 90 percent confidence bands.
- Pre-pandemic sample and different lag lengths robustness tests show qualitatively similar impulse response patterns for Oil prices, Food prices, Shipping costs, and Non-energy commodity prices.
- Additional impulse responses are reported for shocks to USD exchange rate (local currency per U.S. dollar—i.e. a depreciation) and the output gap.

### Policy implications and recommendations
- Monetary policy should react to persistent global food price shocks to prevent increases in inflation expectations and second-round effects through wages and prices.
- Early policy actions were warranted during the 2021–22 surge because overlapping global shocks complicated real-time diagnostics.
- Policymakers should anticipate that phasing out energy subsidies will likely raise domestic energy costs and exert additional upward pressure on inflation.
- Continued empirical work is advised to quantify second-round effects and the transmission speed from food prices to cost and wage pressures in the CEMAC region.

### Data definitions and sources (selected)
- CEMAC headline HICP: Harmonized Index of Consumer Prices (HICP) (2018=100). Monthly; quarterly average. Source: BEAC.
- CEMAC real GDP: Real GDP-weighted. Annual; interpolated to quarterly. Source: IMF World Economic Outlook; IMF staff calculations.
- Commodity food prices: World food index (2016=100), USD. Monthly; quarterly average. Source: Datastream, IMF.
- Oil prices: Brent crude oil price in USD. Daily; quarterly average. Source: Datastream.
- Inflation Expectations: 5-year-ahead and 3-year-ahead forecasts for CPI inflation. Annual; interpolated to quarterly. Source: IMF, from historical WEO forecasts.
- Baltic Dry Index: Daily; quarterly average. Source: Datastream.
- China PPI: Quarterly. Source: National Bureau of Statistics of China.
- XAF/USD exchange rate: National Currency Per USD, XAF. Monthly; quarterly average. Source: IMF, IFS.
- World industrial production gap: Monthly; quarterly average. Source: Netherlands Bureau for Economic Policy Analysis (CPB); and IMF staff calculations.

*Source: https://www.imf.org/-/media/files/publications/wp/2024/english/wpiea2024055-print-pdf.pdf*

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_Source: https://www.imf.org/-/media/files/publications/wp/2024/english/wpiea2024055-print-pdf.pdf_