Are International Food Price Spikes the Source of Egypt’s High Inflation?

This paper examines whether domestic inflation spikes in Egypt during 2001-2011 were primarily the result of external food price shocks. To estimate the pass-through of international food price inflation to domestic price inflation, two different methodologies are used: a 2-step regression model estimates the pass-through in the long run, and a VAR model provides the short-run estimates. The empirical evidence confirms that pass-through is high in the short term, but not in the long run. More precisely, our results show that (i) Long-run pass-through to domestic food inflation is relatively low, lying between 13% and 16%, while the long-term spill-over from domestic food inflation to core inflation is moderate, lying around 60%; (ii) In the short-term, pass-through is relatively high, estimated around 29% after 6 months and around two-thirds after a year, but the spill-over effect to core inflation is limited; (iii) international food price shocks explain only a small portion of domestic inflation shocks in both the short and long terms; and (iv) international price inflation has asymmetric effects on domestic prices.  

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