Long-term casual analysis of the energy-food price relationship

Abstract

The energy price index is a key economic measure that tracks changes in the prices of energy commodities, such as petroleum, electricity, and gas. This study aims to explore how the energy price index influences the food price index, as both have significant impacts on the economy. The relationship between energy and food prices is complex and affected by various factors. The novelty of this research lies in identifying the time period during which increases in energy prices impact food prices due to inflation. A statistical approach is applied to investigate this effect, using data from Pakistan's energy and food price indices for the period between January 2019 and May 2023. The Augmented Dickey-Fuller (ADF) test is employed to assess whether the time series is stationary, followed by the Granger causality test to determine if the energy price index can be used to predict changes in the food price index. The Engle-Granger cointegration test is used to identify long-term relationships between non-stationary time series. Additionally, various lag tests are conducted to determine the minimum time period within which changes in energy prices influence food prices. This research has practical implications for policymakers. Government agencies can use the findings to predict potential changes in food prices, and the study may also be relevant to the United Nations' Sustainable Development Goals (SDGs), as shifts in food prices could directly or indirectly affect several SDGs.