Asymmetric Effects of Energy Inflation, Agri-inflation and CPI on Agricultural Output: Evidence from NARDL and SVAR Models for the UK

Abstract

This paper investigates the effects of inflation in the UK energy, agriculture and consumer sectors on agricultural output, using monthly data between February 2015 and October 2022. Existing studies on agricultural inflation – agflation – explore the impact on economic activity vis-a-vis unemployment, consumption, interest rates and agricultural production. In this paper, we consider some of the causes of agflation, particularly the role of energy prices that are of great importance at the time of writing, to the supply of food. In addition, we consider the broader context of energy price fluctuations and uncertainty. Our approach adopts a Non-Linear Autoregressive Distributed Lag (NARDL), Structural Vector Auto Regression model (SVAR), including impulse response analysis. Our findings suggest the increase in energy inflation agflation and CPI, adversely affect agricultural output, while decreases in energy inflation, agflation and CPI positively affect agricultural output in the UK. These should be of significant interest to hedge fund managers, institutional investors and economic policymakers, particularly with regard to hedging and portfolio risk diversification strategies.