Food inflation in Asia is rising sharply (Figure 1 and 2, dark line), and the recent appreciations of the renminbi and the rupee mean even larger increases in dollar terms (Figure 1 and 2, gray line).
China and India are always amongst the largest producers, consumers, importers and exporters of food such as wheat and rice. The effect of food inflation in China and India on international food inflation is evident even in imported food inflation in Colombia, 10,000 miles away. Figure 3 shows the effect of a weighted average of dollar-measured food inflation in China and India on Colombia’s food inflation. The figure is self explanatory. Asia is much more important in explaining imported food inflation in Colombia than advanced countries. Figure 4 shows that a linear combination of food inflation in the US and Germany does not help explain Colombia’s imported food inflation.
 The weights are found in an estimation available at http://www.banrep.gov.co/docum/ftp/borra512.pdf
Is international food inflation then the cause of macroeconomic inflation in emerging markets? Not necessarily. The case of Colombia illustrates that even in the presence of high international food inflation, exchange rate appreciation has helped offset the pass-through of international food inflation onto domestic inflation. During 2007, the strong appreciation of the exchange rate made imported food inflation measured in pesos negative.
The cause of the rise in food inflation in Colombia during 2007 must then lie elsewhere. The two candidates are the weather and the stance of monetary policy.
Climatic effects such as El Niño can have important effects on food prices, but these effects are typically short lived. When climatic changes coincide with strong domestic demand and expansionary monetary policy, the policy makers’ perceptions of the real cause of long-lasting macroeconomic inflation are blurred. It is all too easy to say that an inflation spur was due to international food inflation or to the weather.
Short-term supply shocks in agriculture should not be resisted because this policy would transmit supply instability in food agriculture to the macro economy. However, if the change in relative prices is to last over the long term, monetary policy must attempt to allow for the change in relative prices to take place without compromising overall price stability. This necessitates that nonfood inflation must fall below the long-run target for total CPI inflation.