Long term relationship between food, energy and water inflation in South Africa

• Main Author: Saul Ngarava
• Format: Article
• Language: English
• Published: KeAi Communications Co., Ltd. 2021-01-01
• Series: Water-Energy Nexus
• Subjects: Consumer price index; Food-energy-water nexus; Impulse response function; Parsimonious vector autoregressive; Variance decomposition
• Online Access: http://www.sciencedirect.com/science/article/pii/S2588912521000102

The food-energy-water (FEW) nexus provides leeway into the lateral transmission of price volatilities within the sectors. The problem is that any inflationary price tendencies in one of the FEW sectors will have direct and indirect effect on the other. The objective of the study was to ascertain the relationship between inflation in food, energy and water, and determine whether there were spill-overs, in South Africa. Monthly consumer price indices for food, energy and water for the period spanning from January, 2002 to December, 2020, were used. Parsimonious vector autoregressive (VAR) model was used in data analysis. The study found that prior to 2013, inflation rate was higher for food relative to water and energy, respectively. After 2017, water had a higher inflation rate relative to energy and food, respectively. Furthermore, energy inflation had positive impact on both water and food inflation, whilst water inflation also had positive impact on food inflation. The study concludes that there is a nexus in the lateral inflation between food, energy and water. Recommendations include building resilience within the nexus through decoupling food and other sectors from fossil fuel-derived energy. There is need to strike a balance in biofuel and energy production policy to foster complementarities. Operational efficiencies within the sectors also need to be fostered.