THE POLITICAL ECONOMY OF FOOD INFLATION: A COMPREHENSIVE ANALYSIS OF FOOD INFLATION DRIVERS

Abstract

This study analyses the factors affecting the food inflation in Pakistan by taking impact of price of import food (IPF), Wheat production (POW), Sugar production (POS), Support prices for watermelon (SPW), Support prices tobacco, Supply money and predicate variable to be written is CPI. Applying econometric methods, results reveal a lack of serial autocorrelation as evidenced by the Durbin–Watson test​, supporting the reliability of the estimated model. And the R 2 indicates that these tests have a high power of predictability on food inflation, which verifies the effectiveness with which independent variables capture variation in food inflation. The empirical results suggest that IPF, POW, POS, WSP and SSP are all positive and statistically significant with respect to food inflation implying the presence of both dynamics with domestic agricultural structural change given supply side characteristics being dominant as well as monetary conditions in terms of price uncertainty in the food space. The contribution of this study is that an existing model using production, agricultural price policies, import prices and money supply in one setting has investigated to justify the food inflation behavior in Pakistan. Drawing attention to these dimensions, the paper offers new policy lessons to contain inflationary pressure while careful management of food security and monetary stability.