Rising Market Concentration and the Decline of Food Price Shock Pass-Through to Core Inflation

June 21, 2019
By Jason P. Brown, Research and Policy Officer and Colton Tousey, Assistant Economist


Research Working PaperCore inflation has become 75 percent less responsive to food price shocks since the 1970s, largely due to rising market concentration in food supply chains.

Using a vector autoregression that allows for time-varying parameters and stochastic volatility, we show that U.S. core inflation became 75 percent less responsive to shocks in food prices since the late 1970s. The decline in the pass-through of food price shocks to inflation is a result of a decline in both volatility and the persistence of food price changes in inflation. This decline in pass-through coincides with a period of increasing concentration in the food supply chain, especially among U.S. grocery retailers and distributors. We find that 60 percent of the variation in pass-through over the last four decades can be explained by changes in food retailers’ and distributors’ market concentration. Controlling for the composition of the food basket and inflation expectations explains an additional 20 percent of the variation. Our results suggest that if the market concentration of food retailers and distributors continues to increase and inflation expectations remain well-anchored, the pass-through of food price shocks to inflation will likely remain subdued.

Download paper

By Jason P. Brown and Colton Tousey

RWP 19-02, June 2019

JEL Classification: E31, E52, Q11

Article Citation

  • Brown, Jason P., and Colton Tousey. 2019. “Rising Market Concentration and the Decline of Food Price Shock Pass-Through to Core Inflation.” Federal Reserve Bank of Kansas City, Research Working Paper no. 19-02, June. Available at https://doi.org/10.18651/RWP2019-02

About the Authors

Jason Brown is assistant vice president and economist in the Economic Research Department of the Federal Reserve Bank of Kansas City. He conducts research on issues related to regional economic growth, emerging industries, natural resource development, and structural change in industry and labor markets. Colton Tousey is an assistant economist at the bank working on regional and energy-related topics.