Interaction Between Cereal Prices And Consumer Price Index (CPI) In Mali

Food security is a major global issue with over a billion people believed to lack sufficient dietary access while others suffer from micronutrient deficiencies. In Sub-Saharan Africa, food insecurity is further exacerbated by climate change scenarios, absence of appropriate storage facilities and increase in transportation costs. These deeply impact traditional farming methods and livelihoods which restrict access to sufficient food and leave people in constant food crisis. This research assesses the influence of Consumer Price Index (CPI) on food prices in Mali. It is based on the premise that, consumer spending of households is often affected by price elasticity (changes in food prices) with a consequence on household incomes. Food price inflation has increased in many Sub-Saharan African countries, pushing up CPI with ripple effects on households as well as on the macro economy. This has a direct consequence on the already weakened household purchasing power thus, exposing these households to food insecurity. Therefore, the potential impacts of price elasticity in relation to CPI are a fundamental food security issue. The main objective of this research was to investigate the short and long-term dynamics and mechanisms of cereal prices in Mali. Monthly data from 1993 to 2014 were used in order to examine the relationships between cereal prices and consumer price index (CPI) in Mali. A Granger causality, Co-integration and Vector Error-Correction Model (VECM) were also applied to estimate the variables.The results showed that, statistically significant long-term equilibrium relationship exists between the CPI and those of the main inputs consumed, such as rice, corn and wheat. It also illustrated that, there exists a negative long-term relationship between CPI and the factors except for millet-sorghum prices. When the prices of rice change by 1% the CPI will change by 0.16% in the same period whereas, if the prices of wheat and millet-sorghum change by 1%, the CPI fluctuates by 0.30%. This implies that the prices of different cereals and CPI affect each other. But millet-sorghum has strongly been affected by CPI than prices of other cereals. Furthermore, all the error correction terms were negative and significant. Despite these, there was no short term causality between them except for the millet-sorghum equation. There was short term causality from millet-sorghum to those variables such as CPI, rice, corn and wheat prices.