Food commodity price fluctuations and their impact on inflation and welfare of farmers in Lampung province, Indonesia
Abstract
This study analyzes the effects of volatile food commodity prices on inflation and farmers’ welfare in Lampung Provinceusing monthly data from 2014 to 2023. Inflation is measured by the Consumer Price Index (CPI), while farmers’ welfareis proxied by farmers’ terms of trade (FTT). Secondary data from the Central Statistics Agency and Bank Indonesia areanalyzed using a Vector Error Correction Model (VECM). The results show that, in the long run, consumer-level prices ofrice, chicken eggs, cayenne pepper, and shallots are cointegrated with the CPI. In the short run, CPI dynamics are significantlyinfluenced by consumer-level prices of cayenne pepper and shallots. Forecast error variance decomposition indicates thatshocks to purebred chicken egg prices contribute the largest share to CPI variability. For farmers’ welfare, producer-levelprices of rice, cayenne pepper, and shallots significantly affect farmers’ terms of trade in the long run, while no short-runeffects are observed. Overall, the findings highlight the importance of stabilizing key food commodities, particularly eggs,cayenne pepper, and shallots, to support inflation control and improve farmers’ welfare in Lampung Province.
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