Food inflation in Lesotho: Implications for monetary policy

The article examines the transmission mechanism between food and nonfood prices in Lesotho within the vector autoregression framework for the period 2003-2012. The results confirm that food inflation in Lesotho is more persistent than nonfood and headline inflation. This implies that shocks to food inflation have had a more lasting adverse impact on food prices than is the case for nonfood inflation. The findings also support the existence of a significant transmission of shocks between food and nonfood prices. As a result, the monetary authorities have to be vigilant when supply shocks hit food, since such shocks could be propagated into nonfood prices and could exert upward pressure on nonfood, headline and core inflation.