Price Volatility and Financial Performance: Assessing the Impact of Food Prices on Pakistan’s Industrial Sector

Humera Iram; Abida  Yousaf

doi:10.32350/aar.52.03

Humera Iram Department of Business Studies, Air University, Islamabad, Pakistan https://orcid.org/0000-0002-8708-5697
Abida Yousaf International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan https://orcid.org/0000-0002-6768-6030

Keywords: financial performance, food price shocks, industrial performance, price volatility, structural vector autoregression

Abstract

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Food is a necessity for human survival, and food price volatility has the potential to affect household consumption patterns and, as a result, it affects the manufacturing decisions of various firms. This study aims to address this dimension of food price volatility, and it examines how it affects the financial performance of the manufacturing sector through its demand and supply channels. It employs the SVAR Model to examine these impacts for monthly time series data from June 2008 to June 2023. The study revealed that for some industries, like engineering, petroleum, rubber, and textiles, food prices lead to an increase in demand. These results show a contradiction to the general consumer behavior theory. However, for the automobile industry, this theory holds firm, as food price shocks reduce the demand for automobiles. For industries like fertilizers, which are the input-providing industry for food production, a positive food price shock boosts the supply. This study addresses a novel dimension of the effect of food price shocks, and goes beyond examining its impact on aggregate inflation, providing a policy guideline to relevant stakeholders for accurate analysis of the impact of these shocks. It will help to address the stability issues of the manufacturing sector of Pakistan and economic development and stability.

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