FACTORS THAT INFLUENCE FOOD PRICE INFLATION IN MALAYSIA

Abstract

Abstract: In Malaysia, there has been a noticeable and enduring issue of food inflation in recent times, making it a prevalent concern. Given these concerns, the objective of this study is to identify the factors influencing the Malaysian food price index, specifically examining the world food price index, labour costs, the real effective exchange rate, and oil prices. The research investigates the determinants of food prices in Malaysia from the supply side, utilizing a Johansen Co-integration Test to assess the long-term relationships between these variables. Additionally, Vector Autoregression (VAR) and the Augmented Dickey Fuller (ADF) unit root test are employed. This study adopts a dynamic approach and uses quarterly time series data spanning from 1987 to 2022. The results of this study indicate that all the time series variables analysed in this investigation exhibit first-order differencing, denoted as I(1), suggesting stationarity at the first difference level. Furthermore, the Vector Autoregression (VAR) test reveals that the optimal lag is at the ninth lag, as indicated by the Akaike value (AIC). The Johansen Juselius cointegration test confirms the presence of two cointegration vectors between the components and the Malaysia food price index, indicating long-term equilibrium among the variables. Additionally, the Granger causality test identifies one-way causality, with the world food price index and the real effective exchange rate influencing the Malaysian food price index, yielding probability values of 0.0037 and 0.0138, respectively. This research can provide policymakers with valuable insights into the dynamics of food price inflation in Malaysia. Consequently, it underscores the importance of the government's role in maintaining food price stability through a multifaceted approach involving various policies and measures.