Steps taken to investigate the price behavior
: The first issue to address is whether inflation
is a problem or not in the economy and markets that are being monitored. If there is little or
no inflation using nominal prices is the best option. The more difficult issue is to determine
the threshold that above which observed prices should be adjusted for inflation. A visual
examination of nominal price shows that starting in September 1995 that inflation was a
beginning to be a problem. The reason that it did not seem to be a large problem during the
1993/94 and 1994/95 marketing seasons (May 1993 April 1995) is that two successive
above average agricultural seasons preceded these marketing seasons.
Still, one has to be careful when deciding to deflate nominal prices and whether to publish
real price graphs. A problem is that these deflated prices have no meaning to farmers,
marketing agents, and most decision makers. The reason for this is that these prices do not
correspond to the prices that they are observing (which are the nominal or inflated prices).
The trick in those situations where inflation is a major problem in the economy is to report
nominal prices, but to also analyze real prices. The real price shows whether or not the
market is behaving properly. In the above example the prices are following a regular
pattern. The second issue is to determine how to report the nominal prices such that
decision makers can understand the food security implication. In this case study it is clear
that the increase is due to inflation, not market behavior. Therefore, the nominal price
information must be combined with other data to assess if there is a problem. In the Zambia
context the increase in problems does imply a decrease in the purchasing power of
households because wages have remained constant during this period. As such, as prices
increase the amount that they can purchase is decreasing over time.
Action taken/follow up
The action that was taken was to do the analysis in both real and nominal terms, and then
report the results in a publication. The graph that was selected for publication was the
nominal graph, but the text discussed the food security implications of both real and
nominal prices behavior.