Abstract
Food inflation in South Africa has been observed to be a major source of underlying inflationary pressures in the economy due to its persistence beyond that of other commodities. In this regard, this study investigated whether an increase in the prices of food products has a significant effect on passenger vehicle purchases in South Africa. The Phillip-Perron (PP) test, showed vehicle purchases to be stationary in level while food inflation was stationary in the first difference. Using secondary time series data, the Johansen cointegration test revealed that the variables in the vehicle purchase function were cointegrated in the long run. The vector error correction model showed a long-run relationship, albeit insignificant, between food inflation and vehicle purchases. There was no evidence of a short run relationship between the two variables. The Granger causality test revealed no causal effect between the variables, regardless of the direction of the test. The study concluded that an increase in the prices of food products will not play a considerable role in consumers’ vehicle purchase decisions in South Africa. These results have policy implications for the motor and related industries.
Highlights
Inflation is considered as posing serious economic challenges to businesses and consumers
Cointegration Results: The Johansen trace cointegration test illustrates the existence of four integrating equations at the 95% (p-value=0.05) confidence level suggesting that vehicle purchases, food inflation, fuel price, interest rate, household disposable income and new vehicle price are cointegrated in the long run
Considering the fact that food inflation in South Africa is viewed as an important source of underlying inflationary pressures in the economy due to its persistence beyond that of other commodities (Rangasamy, 2010), the present study is of considerable value by explaining the relationship between food inflation and consumer purchases of passenger vehicles
Summary
Inflation is considered as posing serious economic challenges to businesses and consumers. This is mainly due to its adverse effect on the value of consumer buying power, social instability and reduction of confidence in the currency (Ashraf, Gershman & Howitt, 2013). It was observed that food prices in South Africa, have an indirect impact on inflation, through their effect on inflationary expectations, wages and the prices of other components in the consumer price index (CPI) (Rangasamy, 2010). Several other studies identified food to be one of the factors that influence purchase decisions (Cheng, Sims & Teegen, 1997; Makatouni, 2002; Munchanda, Ansari & Gupta, 1999; Pieterse, 2009; Rimal, Moon & Balasubramanian, 2005), there appears to be an absence of research that directly links food inflation to passenger vehicle purchases
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
