The Pass-Through of Global Food Price Inflation to Domestic Prices Inflation: Empirical Evidence from South Asia

Abstract

This study investigates and assesses how the international food price surge affects domestic inflation process in South Asia. Global food price indices (GFPI) are collected from FAOSTAT website. Data for domestic prices (CPI and CFPI) are collected from CEIC website. Exchange rates for each country are collected from IMF website. The empirical statistical results are derived by using a battery of parametric and non-parametric econometric techniques using monthly data of price series for the study period, 2005M1 to 2017M12. The co-integration analysis results confirm that the global food prices and domestic prices are co-integrated. Granger–causality test reveals the unidirectional causal relationship running from global food prices to domestic prices over the study period for Pakistan and Sri Lanka. However, In the case of India, Bangladesh and Nepal, samples do not show the evidence of causal relationship in the short run. However, in the long run, GFPI Granger cause local prices in all countries. Therefore, Governments from South Asia need to develop a safety net program for the poor and a longer term poverty reduction strategy. Policy attention needs to shift towards efforts to increase food production. The results of this study have shown various policy implications for monetary policy, food and agricultural policy and trade policy for South Asia.