Global Food Price Dynamics and Domestic Price in Sri Lanka

The average general price movements and price movements of food commodities have been one of the most crucial economic, political and social issues in a globalized world. Food price dynamics in the past decades on a global level have been major components of unanticipated increases in the general inflation rate. Food price dynamics in a globalized world affect an economy in several ways, such as cost of living investment and trade balance. The transmission of global food price dynamics to domestic market determines the decision of economic agents and policy makers of a domestic economy. As food expenditure accounts for a larger portion in CPI in Sri Lanka, food price dynamics play a vital role in general price level. This study aims to examine the transmission effects of global food price and food price volatility dynamics on domestic prices in Sri Lanka. The main analytical tools are cointegration regression analysis, Granger causality analysis and Impulse response function analysis are employed to achieve the objective of the study. The findings show that there is statistically and economically significant global food price transmission effects to domestic prices in Sri Lanka.