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Fundamental Drivers of Food Inflation - Evidence from South Africa

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  • Louw, M.
  • Meyer, F.
  • Kirsten, J.

Abstract

Food inflation and its associated drivers is an important issue to consider in a food security and macroeconomic context. Despite this, scientific research on this is sparse. This study gauges the impact of key fundamental variables on food inflation in terms of magnitude and duration. It employs time series econometric techniques and finds that the exchange rate, world food/commodity prices and local agricultural prices are the main drivers of food inflation in South Africa. In terms of the short-run dynamics, the results suggest that agricultural prices and the exchange rate take up to two months to manifest in food inflation, whereas world commodity prices only affect local food inflation after eight months. The effect of a recent drought and exchange rate depreciation on food inflation is also explored, in terms of scale and persistence. Simulations suggest that the length and effect of the recent drought, as manifested in agricultural prices, will result in double-digit food inflation lasting in excess of 12 months after the commencement of the shock. Simulation results also show that perseverance in exchange rate shocks seems to affect the scale of the final effect on food inflation more than the perseverance. Acknowledgement :

Suggested Citation

  • Louw, M. & Meyer, F. & Kirsten, J., 2018. "Fundamental Drivers of Food Inflation - Evidence from South Africa," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277190, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae18:277190
    DOI: 10.22004/ag.econ.277190
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    References listed on IDEAS

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