World food prices are on the rise again owing mainly to global weather-related shocks. This has led to concern that the rise could result in higher inflation and hurt the most vulnerable. The impact on domestic inflation in Latin America and the Caribbean of the latest food price shock is beginning to be felt, although the pass-through to core (or underlying) inflation has been relatively limited thus far.
We quantify the spillovers from Brazil to other countries in South America. The results confirm that Brazil has a significant influence on Southern Cone countries, particularly on Mercosur partners (Argentina, Paraguay, and Uruguay), but not on the Andean economies. For the Southern Cone countries, spillovers from Brazil can take two forms: the transmission of shocks originating in Brazil and the amplification (through Brazil) of global shocks. These two factors explain an important share of the fluctuations in economy activity in the Southern Cone countries.