Transmission of Fertilizer Price Shocks to Food Inflation in Serbia

Abstract

Over the past five years, the global economy has faced a series of major shocks and crises that have led to periods of exceptionally high inflation across both advanced and developing economies. Rising costs of energy, raw materials, and agricultural inputs have placed additional pressure on production chains, ultimately affecting consumer prices. In Serbia, food prices play a particularly important role in overall inflation dynamics due to their significant weight in the Consumer Price Index (CPI), 31.6% according to the COICOP classification. Additionally, the two indicators, the overall CPI and the Food Consumer Price Index in Serbia, exhibit positive linear relationship. Within this context, this study analyzes if shocks originating from agricultural input markets, specifically fertilizer prices, transmit through the production chain and are significantly affecting food prices in Serbia. Using a Vector Autoregression (VAR) framework, the analysis explores the relationship between Fertilizer Price Index, Agricultural Producer Price Index, and Food Consumer Price Index in Serbia, over the past twelve years. The findings suggest a transmission of fertilizer price shocks to agricultural PPI and indicate an indirect but economically meaningful effect on food inflation over the medium term.