EFFECT OF COMMODITY PRICES ON INFLATION PERSISTENCE: PARTIAL ADJUSTMENT APPROACH

SURIANI

Department of Islamic Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Banda Aceh, Indonesia

suriani@unsyiah.ac.id

Fuad RIDZQI

Department of Development of Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Banda Aceh, Indonesia

fuadrizqi@rocketmail.com

Abstract

The objective of this study is to measure the inflation persistence level in Aceh Province. By using the autoregressive model, the level of persistence counted in general and the level of inflation persistence of commodity groups counted from forming consumer price index (CPI). In addition, this study also explores the source of inflation pressure from these commodity groups by using a partial adjustment model (Partial Adjustment Model). The observation period is the year 2005-2014 using monthly data. The results of this study found that the inflation persistence rate in Aceh Province was relatively low. However, there are several inflation rate variables for CPI commodity groups that exceed the inflation persistence level in common. The source of inflationary pressure discovered also comes from two variables with relatively high persistence levels from other variables, namely foodstuff commodity group variables (BM) and housing, water, electricity, gas, fuel (PERAL) commodity groups. These variables represent the components of inflation of volatile foods and administered price inflation. This study provides recommendations to relevant policymaker in coordinating, preventing, and overcoming the effects of volatile foods and administered prices on inflation by maintaining the supply of goods (supply stock) and regulating prices that are in line with people’s purchasing power

Keywords: Inflation Persistence, Autoregressive, Commodity Prices

JEL classification: C22, E31, E52
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