A New Approach for Dynamic Analysis of Indonesian Food Prices using the PC Algorithm and Vector Autoregression

Food prices are important global issue and their relationship with fuel prices has become a main concern in society. An increase in the subsidized fuel price on 3 September 2022 has allegedly caused a rise in food (grocery) prices. This paper conducts an empirical study to analyze the relationships between food prices in Indonesia: rice, chicken, beef, egg, red chili, cayenne, shallot, garlic, cooking oil, and sugar. The study uses time series data of food prices from 1 January 2018 to 31 December 2023, which consists of food prices from 87 traditional markets in Indonesia. The commodity prices are obtained from online public data provided by Bank Indonesia. It divides the analysis (pre- and post-3 September 2022) to see how the relationship between food prices changes due to the increase in the subsidized fuel price. It performs the Peter Clark (PC) algorithm to generate causal graphs from real datasets where the true graphs are unknown, complements the analysis by performing Vector Autoregression (VAR) to investigate the dynamic relationship between food prices, especially how the subsidized fuel price increase changes its dynamic relationship. The causal graphs from pre- and post-increasing fuel prices show the changes in the role of variable relationships, e.g., sugar and beef. The VAR results also show an interesting change in the IRF pattern. The results from both the PC algorithm and VAR show that there is a structural change in the relationship between food prices and that there is a different effect of price shock due to the subsidized fuel price increase. It might have been an indication of a change in the consumption pattern in society as a response to a food price increase. This must be a huge task to do in maintaining food prices when there is an adjustment in the subsidized fuel prices.