The Lead-Lag Relationship Between International Food Prices, Freight Rates, and Trinidad and Tobago's Food Inflation: A Support Vector Regression Analysis

Abstract

The objective of this study is to empirically investigate: i) the extent in which shipping costs can cause and predict the food inflation in Trinidad and Tobago (T and T); ii) the extent in which international food prices can drive food inflation in T and T; and iii) the impact of the Russia-Ukraine conflict on food prices in T and T. As a fourth sub-objective, this study seeks to provide policy recommendations to address the food price inflation in T and T. A structural model is sought as it can use information about the past prices of the international food prices and shipping rates to forecast T and T's food price inflation. this study used monthly data on T and T retail price index food subcategory, the FAO Food Price Index (FFPI), and the Freightos Baltic Index over the January 2015 to November 2022 period. the Support Vector Regression (SVR) model was applied and used the FFPI and Freightos Baltic Index as the leading indicators to forecast T and T's food price inflation. this study found that the FAO Food Prices does and the Freightos Baltic Index does have an impact on food prices in T and T. Secondly, based on the FAO index and the Freightos Baltic Index, T and T's food price inflation should be 14.91% lower than its present value. third, in a Markov Switching regression, the war dummy was only significant in the second regime, statistically suggesting that the Russia-Ukraine conflict only had a short term effect on T and T's food prices. this contributed to the literature as it introduced a new test to investigate predictive causality. Policy measures to increase the agriculture output and address the food price inflation in T and T include adopting sustainable farming practices such as integrated pest management T and The sustainable water management, and encouraging aquaponics.