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Retail Food Price Inflation Modelling Project - DO10106

The boom in the prices of commodities in 2007 and 2008 led to a spike in inflation in many economies. Consumer food price inflation was no different, having responded to sharp increases in soft commodity prices in a relatively short period of time. Given the weight food products have in the calculation of consumer price inflation in many countries, understanding the factors that caused this food price response is important.

The research presented in this report outlines how the aims of the wider food price modelling project for Defra were met. The objectives were:

>To review and evaluate the existing understanding of the drivers of UK consumer food price inflation;
>To model the drivers of UK consumer food price inflation, and;
>To create a tool that allows for forecasting and scenario setting, to help policy makers understand with greater certainty how UK consumer food price inflation might develop in the future.

The report provides the following:

> A review of the history of consumer food price inflation in the UK, and compares UK food price inflation with that in other OECD countries.
> A review of the background literature to the issue of food price inflation, covering the main causes of the 2007-2008 commodity price spike, price transmission and, more generally, the links between commodity markets and inflation.
> An explanation of the approach to modelling domestic retail food price inflation taken, including the results of an investigation of the long-run relationship between the main drivers of domestic retail food prices.
> Interpretation of the output of exploratory runs of the forecasting tool developed as a deliverable from the project.

As a result of the commissioning and delivery of the research, Defra has a clearer understanding of:

> the factors that drive food price inflation;
> the scale of the effects of the drivers and the dynamic response of food price inflation to these drivers, and;
> an understanding of the price transmission mechanism in specific food products.
Project Documents
• FRP - Final Report : Retail Food Price Inflation Modelling Project   (1534k)
Time-Scale and Cost
From: 2010

To: 2010

Cost: £45,984
Contractor / Funded Organisations
University - Nottingham