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 two-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 (1) 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 %; (2) 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; (3) international food price shocks explain only a small portion of domestic inflation shocks in both the short and long terms; and (4) international price inflation has asymmetric effects on domestic prices.