Monetary policy and food price inflation: the case of Hungary

Abstract

PurposeWe analyze the role of monetary policy shocks on food inflation in Hungary from January 2007 to March 2023, including the period of the COVID-19 crisis and the Russo–Ukrainian war.Design/methodology/approachWe use quantile regression with three different specifications. The structural breaks in the time series and the monetary policy’s lag in response are also taken into account. We use the M0 money supply and the three-month Hungarian National Bank (MNB) deposit rate as monetary measures to check the robustness of our findings.FindingsWe find that neither the money supply nor the exchange rate affected food inflation across quantiles. In the case of high food price inflation, reducing short-term government bond yields may be an effective solution. Household final consumption affected food prices in the lower quantiles, and the global food price index similarly affected Hungarian food inflation. The results are robust to different specifications.Research limitations/implicationsThis research has limitations as follows: while Hungary’s food prices provide a valuable case study, expanding to more countries is advisable; although quantile regression captures details, its reliability for non-linear relationships is questionable; additionally, considering various global food price indicators can enhance result robustness.Originality/valueThe paper contributes to the longstanding political debate regarding the effectiveness of monetary policy in stabilizing food inflation. The findings emphasize the importance of considering both domestic and global factors in formulating policy responses to food price dynamics.