Food Prices and Inflation Expectations in New Zealand

ABSTRACT Food prices are conspicuous, and spending on food constitutes a considerable share of household expenditure. In this study, we use partially identified Bayesian structural vector autoregression models to analyze the effects of food price shocks on core inflation and 1‐ and 5‐year inflation expectations in New Zealand. Our findings show that food price shocks caused a slightly delayed yet persistent rise in 1‐year inflation expectations, while 5‐year expectations and core inflation were largely unaffected. These shocks explained 9.40% of the variability in 1‐year inflation expectations but only 4.47% in 5‐year expectations. Furthermore, counterfactual analyses reveal that 1‐year inflation expectations would have been lower over the period 2020–2023 in the absence of food price shocks. In contrast, 5‐year inflation expectations would not have been materially different.