Abstract
During the last decade, the rising trend in energy prices and its potential effect on food prices have become a controversial issue between policy-makers and economists. Therefore, research addressing the relationship between food and macroeconomic variables, such as energy prices, will be useful in providing information for the design of appropriate economic policies. This study uses data from Iran to examine the impacts (short- and long-term) of exchange rate and energy prices on food prices. Iran is a good case study as in recent years its consumers have faced a rapid increase in both fuel and food prices. The variables employed in this study are the prices of ten food products, exchange rate (the value of Iranian rial per US dollar), and petroleum prices. All data in this study are from the Statistical Centre of Iran (SCI). We employ the panel unit root test, Pedroni co-integration tests, Pooled Mean Group (PMG), Mean Group (MG), and Dynamic Fixed Effects (DFE) estimation techniques, applied to a panel of monthly prices for ten food products for the period of March 1995 to February 2018. Results show that in both the short- and long-run, food prices would increase in response to an increase in energy prices. Findings also suggest that the appreciation of the United States Dollar (USD) in terms of the Iranian rial exerts a positive and significant impact on food prices in the long run.
Highlights
Iran is one of the world’s most energy-rich countries, accounting for about 11% of world oil reserves and 15.3% of world gas resources, and plays an important role in the global energy markets [1]
The current study examines the short-and long-term impacts of the exchange rate and energy prices on food prices in Iran, using monthly prices ranging from
It can be concluded from the results of this study that the continuation of the current energy policy leading to rising energy prices will cause an increase in food prices and, it will have a negative impact on consumer welfare, especially in low-income deciles of Iranian population who spend about 44 percent of their income on food products
Summary
Iran is one of the world’s most energy-rich countries, accounting for about 11% of world oil reserves and 15.3% of world gas resources, and plays an important role in the global energy markets [1]. In Iran, the government’s annual budget is heavily dependent on energy resources, as about 60% of the government’s income comes from oil and gas resources. Energy prices in Iran are often determined by the government and they have little dependence on global energy market fluctuations. Energy prices in Iran are often divorced from global prices as the government uses the energy price policy for welfare and income support. The social and environmental problems of these supportive policies, on the one hand, the intensification of economic sanctions, and increase in the budget deficit on the other hand were strong reasons for the government to pursue energy price reform policies
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