Food price dynamics in Sri Lanka and its statistical properties

Abstract

Introduction :

Food price movements have significant impacts on the world’s political and economic stability as well as the welfare of the people in every country (Wodon and Zaman, 2010). The increase in food prices has the most nefarious consequences (Joseph and Wodon, 2008). It reduces purchasing power and food security and increases hunger, poverty and malnutrition. Further, higher food inflation challenges macroeconomic stability and growth of an economy.

Food prices are one of the most significant sources of inflation in Sri Lanka. Food and non-alcoholic beverages account for 47 percent of total household expenditure (Department of Census and Statistics, 2012). The issue of food price dynamics has gained increasing attention in the economics literature (Aye, 2012; Baek and Koo, 2009; Durll et al., 2010; and Ularo, 2010) in recent years. Ratnasiri (2009) has examined the main determinants of inflation in Sri Lanka but has not included food prices in his analysis. Cooray (2008), Karunathilaka (1974) and Sivarajasingham (2012, 2013) have studied food price transmission and its transitory nature in Sri Lanka. However, the above studies did not focus on food price dynamics and its statistical properties in Sri Lanka. On the other hand, the characteristics of inflation induced by the food prices have been extensively analyzed in developed countries, but not given much attention in developing economics, including in Sri Lanka. This gap is addressed in this paper.