The Impact of Food Price Increases on Consumer Welfare in Khyber Pakhtunkhwa, Pakistan

Abstract

Limited research has examined the impact of food inflation on consumer welfare in Khyber Pakhtunkhwa (KP), Pakistan. This study utilizes nationally and provincially representative data from the Pakistan Social and Living Standards Measurement, Household Integrated Economic Survey (PSLM-HIES) 2018-19, comprising 4,464 households from KP. A Linear Approximate Almost Ideal Demand System (LA-AIDS) model is estimated to derive compensated own- and cross-price elasticities of demand for seven major food commodities: (1) rice, (2) wheat and wheat flour, (3) milk and milk products, (4) fruits, (5) vegetables, (6) meat (beef, mutton, and poultry), and (7) cooking oil. These elasticities are combined with observed food price inflation between 2018 and 2021 to simulate changes in consumption and assess welfare impacts measured through changes in poverty rates. Results indicate that food price inflation increased the provincial poverty headcount from approximately 15% in 2018 to 19% by 2021. The adverse effects are heterogeneous: poverty rose most sharply in the divisions of D.I. Khan and Bannu. Rural households experienced a larger welfare loss compared to urban households. Policy recommendations emphasize targeted price stabilization and social protection measures in the most affected divisions and rural areas.

Keywords: Food inflation, consumer welfare, poverty, demand elasticities, Almost Ideal Demand System, Khyber Pakhtunkhwa, Pakistan