Determinants of food inflation in Turkey: SVAR approach

Food price increases and food inflation are of economic and social importance. Economically, food inflation can affect general inflation and strain household budgets, reducing consumer spending. It can also affect the agricultural sector, affecting farmers' incomes and leading to economic imbalances. Socially, high food prices can have a particularly negative impact on low-income individuals and families, limiting access to staple foods and leading to food security problems. Therefore, food price increases and food inflation are considered to be important indicators of the overall economic well-being and social cohesion of a society. In recent years, food inflation has become an important topic of discussion in Turkey as well as in the world. The main reason for this is that food ranks at the top of the hierarchy of human needs and is the subgroup with the highest rate in the consumer price index. In this context, it is of great importance to effectively identify the determinants of food inflation for Turkey. This study aims to investigate the determinants of food inflation in the Turkish economy. For this purpose, firstly, the relevant literature is reviewed and a model is constructed within the framework of the literature. The dependent variable of the model used in the study is Turkey's food inflation, while the independent variables are world food price index, oil prices and real exchange rate. The model is analyzed using the Structural VAR (SVAR) approach. Firstly, ADF and PP unit root tests and Structural Break Unit Root tests were applied and it was determined that the variables in the model were stationary in the first difference. In order to determine the responses of the variables in the model to shocks, the long-run multiplier matrix of the SVAR model is analyzed, followed by impulse-response analysis and variance decomposition. The empirical findings of the study show that the response of food inflation to its own shocks is positive and significant, while the response of food inflation to the World Food Price Index and oil prices is initially negative. It was determined that the response of food inflation to the real exchange rate was positive at the beginning but became statistically insignificant at the end of the first month and faded over time. In conclusion, it can be said that it is important to effectively manage the World Price Index, oil prices and exchange rate in the process of implementing policies aimed at stabilizing food inflation.