The effect of food commodity price fluctuations on inflation in Pematang Siantar City

Abstract

Abstract The large contribution of inflation in the food group influences the dynamics of economic growth in Indonesia, especially in Pematang Siantar City. The increase in commodity prices causes a decline in the value of the currency so that the purchasing power of society is low. This is because in real terms the level of community income decreases. Thus, the researcher wants to examine the effect of fluctuations in monthly food commodity prices in Pematang Siantar City from January 2013 to December 2017. The analytical tool used is the VAR analysis. The results, it can be concluded that in the short term two variables affect inflation at i.e. inflation and rice. Whereas in the long-term, five variables influence inflation, namely rice, chicken, red chili, cooking oil, eggs, and corn. In the short, medium and long term, a large response to inflation is the red chili difference. Every time a standard deviation occurs, the shock of red chili will be responded to by inflation until it rises 0.164180 (short-term), 0.139068 (medium-term) and 0.139071 (long-term). Then the most dominant in explaining the diversity of inflation is red chili and purebred eggs.