Pass-through is one of the most important concepts in applied economics, yet it rarely makes headlines. In simple terms, pass-through measures how much of a price change at one stage of the supply chain eventually flows to the next stage, and ultimately to the consumer.
When economists say that exchange rate pass-through to consumer prices is 40%, they mean that a 10% depreciation of the local currency leads, over time, to a 4% increase in consumer prices for imported goods. The remaining 60% is absorbed by importers, wholesalers, and retailers who accept thinner margins rather than lose customers.
Recent IMF research (Carrière-Swallow et al., WP/23/86) has shown that pass-through is not constant — it is "state-dependent," meaning it increases significantly during periods of high inflation and elevated uncertainty. This finding matters because it means historical pass-through estimates from calm periods underestimate the impact during crises like wars or pandemics.
The European Central Bank's research confirms that pass-through declines along the pricing chain: a 1% depreciation of the euro raises import prices by 0.3–0.8% within one year, but raises consumer prices by less than 0.1% (ECB Occasional Paper 241). This tenfold reduction reflects the many layers of absorption between the border and the checkout counter.
For food staples, pass-through tends to be higher than for manufactured goods. Bread, cooking oil, and rice are commodities where the raw input cost is a large share of the final price. A wheat price shock passes through to bread prices much more directly than a steel price shock passes through to car prices, because the car has thousands of other components and layers of value-added processing.
The World Bank (Ha, Stocker, & Yilmazkuday, Policy Research Working Paper 8780) found that pass-through is asymmetric: currency depreciations have a larger and more persistent effect on prices than appreciations of the same magnitude. They also found that pass-through remains higher among emerging market economies without inflation-targeting central banks, which helps explain why countries like Egypt, Nigeria, and Pakistan experience sharper consumer price impacts.
Government intervention can reduce or delay pass-through. Fuel subsidies, price controls, strategic grain reserves, and targeted cash transfers all act as buffers. Egypt’s bread subsidy program, for instance, keeps the price of baladi bread almost unchanged regardless of global wheat prices, though the fiscal cost of maintaining this buffer exceeded $5 billion annually by 2023 (IMF Country Report, 2024).
Our simulator uses a 100% pass-through assumption as a deliberate ceiling. This means every estimate shows the maximum possible consumer price impact if all upstream cost changes flow through completely. In practice, actual impacts are typically 55–75% of the ceiling, depending on the country and category.
Sources: IMF Working Paper WP/23/86 (2023). ECB Occasional Paper 241 (2022). World Bank Policy Research Working Paper 8780 (2019). IMF Country Report on Egypt (2024).