The nexus between fuel and food prices: A time series regression with Newey-West standard errors

Abstract

This study examines the relationship between diesel prices and the prices of three staple food crops (maize, beans, and rice) using a time-series regression approach with Newey–West standard errors. It tests the common assumption that rising diesel costs increase agricultural production and transportation expenses, thereby driving up food prices. This study draws on cost-push inflation theory, agricultural household production theory, and time-series econometric theory. Using monthly time series data, the study applies unit root tests, Granger causality analysis, and Newey-West regression estimation to assess both dynamic and simultaneous relationships. The unit root tests confirm that all variables are stationary at levels, making them suitable for time series analysis. Granger causality results reveal heterogeneous transmission effects between diesel and food prices. Diesel prices Granger-cause rice and beans prices at the 5% significance level, while no causal effect is found on maize prices. In addition, there are interdependencies among food crops, with evidence of causality running from beans to maize and from maize to rice, indicating partial price transmission within agricultural markets. However, no reverse causality from food crops to diesel prices is observed, supporting the exogeneity of diesel prices in the system. The Newey-West regression results further show a statistically significant positive relationship between diesel prices and all three food crop prices. These findings highlight the critical role of fuel costs in driving food price inflation through production and transportation channels, although the magnitude of impact varies across commodities. The study concludes that energy price shocks are an important determinant of food price dynamics in Tanzania, with implications for both agricultural and macroeconomic policy coordination. Coordinated energy–agriculture policy integration is essential for enhancing food price stability and protecting consumers from external price shocks.