Commodity Price Pass-Through and Inflation in Japan : a Nonlinear Time Series Analysis

Consumer prices have increased in Japan since the pandemic began, when commodity prices increased worldwide. This study investigates commodity price pass-through into inflation in the low and high inflation regimes in Japan. By estimating the threshold autoregressive model that considers past inflation rates, I find a nonlinear relationship between the pass-through and the state of inflation. First, the estimation shows that the short- and long-run pass-throughs are higher, and the price adjustment to changes in commodity prices is quicker, in high inflation regimes, regardless of whether the commodity is energy or non-energy. Second, energy prices have a significant effect on inflation in both the short and long run. However, I could not identify the effects of non-energy prices on inflation. This result suggests that the Bank of Japan needs to pay more attention to energy prices in order to control inflation