Decomposition of Food Price Changes: Food-at-Home and Food-Away-From-Home Prices

Abstract

Significant increases and fluctuations in the food price inflation of food-away- from-home (FAFH) and food-at-home (FAH) have been observed in the last couple of years. Many demand- and supply- driven factors may be responsible for such phenomena. On top of that, the total food price is a weighted average of FAH and FAFH prices. Hence, the effect of external shocks on each category can be different. The major goal of this paper is to capture the differential impact of major demand- and supply-related factors on the two aggregate food price categories, FAH and FAFH, and ultimately on the total price of food. We use the monthly Consumer Price Index data on FAH and FAFH from the Bureau of Labor Statistics from December 2003 to July 2024. Two Structural Vector Autoregressive (SVAR) models, one with all exogenous variables and total food price, and the other with all variables, FAH and FAFH prices, are used for our analyses. Results show that the contribution of FAH prices to total food prices is more than FAFH prices. The results from the impulse response analyses show that supply side factors such as farm product prices, transport prices, and wages have persistent positive effects on food prices. In contrast to FAFH, the effect of almost all shocks on FAH is in the same direction as that of the total food, suggesting a higher impact of FAH on total food. Forecast error variance decomposition and historical decomposition highlight the higher impact of supply related factors on food price variability. The findings from this study are important to understand how demand and supply shocks affect the inflation of different categories of food, which could ultimately affect the overall food price inflation.