The pattern described above is what happens when a normal (or average) harvest is
recorded. If the expectation that the harvest will be above average, then traders may sell
more of their stocks (so they do not get stuck holding large amounts of a commodity).
The increase in volume will accelerate the decline in the commodity's price. If the
expectation is that there will be a below average harvest, then traders will tend to hold
higher levels of stocks in anticipation of higher prices (since there will be an increased
demand) later in the marketing season.
2.3.6 Influence of macroeconomic conditions on market behavior
Macroeconomic conditions can have dramatic influences on market behavior and
household food security. The main macroeconomic issue that needs to be understood in
price analysis is inflation. Inflation is defined as the general increase in the price level of
all goods and services in an economy from one period to another. Inflation is measured
using either a producer price index (PPI) or a consumer price index (CPI). CPI is most
commonly used measure. Changes in inflation are closely related to fluctuations in real
There are three main types of inflation: demand pull, cost push and structural.
is brought about when the economy spends above its capacity to produce. That is
when the demand for commodities rise above the production capacity of producers based on
the available resources in that economy.
Cost push inflation
occurs when the cost of
production for producers go up due to increase in fuel prices, power and raw materials,
occurs when prices and wages are flexible upwards
and inflexible downwards. If there is a structural change in demand for example some
industries in the economy have increased demand for their products the increased price
results in a more permanent level of increased prices.
The importance of inflation to monitoring prices for early warning is not only because it
erodes real incomes but that it also complicates price analysis. One way that inflation
complicates price analysis is that it makes it difficult to interpret prices differences between
years. Another way inflation complicates price analysis is that it can distort intra annual
seasonal price patterns (figure 2.2). In this case even if there is relatively low inflation the
underlying price patterns can become distorted.
F i g u r e 2 . 2 P r i c e d a t a w i t h n o i n f l a t i o n ,
1 0 % i n f l a t i o n a n d 2 0 % i n f l a t i o n
7 0 0
6 0 0
5 0 0
4 0 0
3 0 0
2 0 0
1 0 0
T i m e