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 confi rm that food infl ation in Lesotho is more persistent than nonfood and headline infl ation. This implies that shocks to food infl ation have had a more lasting adverse impact on food prices than is the case for nonfood infl ation. The fi ndings also support the existence of a signifi cant 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 infl ation.

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