Food Price and Inflation Volatilities during Covid-19 Period: Empirical Study of a Region in Indonesia

Abstract

This study aims to analyse the effect of food price volatility on inflation in 34 provinces in Indonesia using monthly data from January 2018 to December 2021. The dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), and heterogeneous non-causality approaches were used. The results showed the presence of a long-term relationship between food prices and inflation volatilities. Furthermore, it was noted that chili, rice, shallot, and garlic prices had a positive impact on inflation volatility, but chicken prices had a negative effect. The empirical results also suggested that central and local governments need to stabilize food prices to minimize inflation fluctuation. When the data were split before and during the Covid-19 pandemic, the results showed there was a significant difference in the effect of chili, rice, shallot, and chicken prices volatility on inflation volatility.