Food Inflation, Exchange Rates, and Global Commodity Shocks: A Comparative Analysis of Türkiye and Pakistan

Abstract

Abstract

This study analyzes the determinants of domestic food price inflation in Pakistan and Türkiye over the years 2000 to 2004, including the role of exchange rates, monetary policy, global commodity prices, and the global food price index. As for Pakistan, the Autoregressive Distributed Lag (ARDL) model is employed to estimate short-run and long-run trends via the error correction mechanism (ECM) amid a unit root test confirming all variables as a mix of I (0) and I (1). However, in the case of Türkiye, the variables failed to meet stationarity criteria, and because of the presence of I (2) integration in the food price index and policy rate, only short-run differenced regression with Newey-West robust errors was estimated, while long-run ARDL became econometrically invalid. The findings reveal that in both countries the primary inflationary driver is exchange rate depreciation, with Türkiye having a strong, almost complete short-run pass-through (β ≈ 0.97) and Pakistan with a strong long-run effect (β ≈ 0.80). Furthermore, global food price volatility is significantly impacting inflation in Pakistan in the long run and is marginally significant in Türkiye in the short run. However, the monetary stance has an insignificant effect in both countries. Overall, in Pakistan the food inflation is structurally driven, while in Türkiye it is because of the shocks and volatility. To control the inflationary pressures, the policies should be diverted towards exchange rate stabilization, targeted import hedging, and supply chain risk management.

Keywords: Food Price Inflation; Exchange Rate Pass-Through; Monetary Policy; ARDL; Global Commodity Prices; FAO-FPI; Pakistan; Türkiye; COVID-19.