Why inflation is not relative price-neutral for primary products

Studies of inflation tend to neglect relative prices although it has long been known (and recently confirmed) that relative price changes are more pronounced in periods of severe inflation. This paper advances the hypothesis that for the developing countries' primary products the distinction between demand and cost inflation is important: the former will improve the relative price of primary products; the latter will cause them to deteriorate if the cost inflation originates in developed countries. In the long run these effects may be cancelled out but not before they have lasted long enough to merit our attention.