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Are international food price spikes the source of Egypt's high inflation ?

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  • Al-Shawarby, Sherine
  • Selim, Hoda

Abstract

This paper examines whether domestic inflation spikes in Egypt during 2001-2011 were primarily the result of external food price shocks. To estimate the pass-through of international food price inflation to domestic price inflation, two different methodologies are used: a two-step regression model estimates the pass-through in the long run, and a vector autoregression model provides the short-run estimates. The empirical evidence confirms that pass-through is high in the short term, but not in the long run. More precisely, the results show that (i) long-run pass-through to domestic food inflation is relatively low, lying between 13 and 16 percent, while the long-term spill-over from domestic food inflation to core inflation is moderate, lying around 60 percent; (ii) in the short term, pass-through is relatively high, estimated around 29 percent after 6 months and around two-thirds after a year, but the spill-over effect to core inflation is limited; (iii) international food price shocks explain only a small portion of domestic inflation shocks in both the short and long terms; and (iv) international price inflation has asymmetric effects on domestic prices.

Suggested Citation

  • Al-Shawarby, Sherine & Selim, Hoda, 2012. "Are international food price spikes the source of Egypt's high inflation ?," Policy Research Working Paper Series 6177, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6177
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    References listed on IDEAS

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    1. Al-Mashat Rania & Billmeier Andreas, 2008. "The Monetary Transmission Mechanism in Egypt," Review of Middle East Economics and Finance, De Gruyter, vol. 4(3), pages 32-82, September.
    2. Albers, Ronald & Peeters, Marga, 2011. "Food and energy prices, government subsidies and fiscal balances in south Mediterranean countries," MPRA Paper 28788, University Library of Munich, Germany.
    3. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    4. El-Sakka M. I. T. & Ghali Khalifa H, 2005. "The Sources of Inflation in Egypt: A Multivariate Co-integration Analysis," Review of Middle East Economics and Finance, De Gruyter, vol. 3(3), pages 84-96, December.
    5. Lombardi, Marco J. & Galesi, Alessandro, 2009. "External shocks and international inflation linkages: a global VAR analysis," Working Paper Series 1062, European Central Bank.
    6. Luca ONORANTE & Gianluigi FERRUCCI & Rebeca JIMÉNEZ-RODRÍGUEZ, "undated". "Food Price Pass-Through in the Euro Area: the Role of Asymmetries and Non-Linearities," EcoMod2010 259600125, EcoMod.
    7. Fred Furlong & Robert Ingenito, 1996. "Commodity prices and inflation," Economic Review, Federal Reserve Bank of San Francisco, pages 27-47.
    8. Ligang Liu & Andrew Tsang, 2008. "Pass-through Effects of Global Commodity Prices on China's Inflation: An Empirical Investigation," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(6), pages 22-34.
    9. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135 Elsevier.
    10. Stephen G Cecchetti & Richhild Moessner, 2008. "Commodity prices and inflation dynamics," BIS Quarterly Review, Bank for International Settlements, December.
    11. Jongwanich, Juthathip & Park, Donghyun, 2009. "Inflation in developing Asia," Journal of Asian Economics, Elsevier, vol. 20(5), pages 507-518, September.
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    Cited by:

    1. Ibrahim AWAD, 2013. "Challenges For Adopting Inflation Targeting Regime In Egypt," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 11, pages 59-81, June.
    2. repec:wsi:medjxx:v:05:y:2013:i:03:n:s1793812013500193 is not listed on IDEAS
    3. Misati, Roseline Nyakerario & Munene, Olive, 3. "Second Round Effects And Pass-Through Of Food Prices To Inflation In Kenya," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3(3).

    More about this item

    Keywords

    Food&Beverage Industry; Markets and Market Access; Currencies and Exchange Rates; Emerging Markets; Access to Markets;

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