FORECASTING INDIAS FOOD PRICE

INDEX USING ARIMA MODEL

GROUP 6
ANURAAG MONDAL
AMAN NOGIA
NITIN KUMAR
NITIN NATH SINGH

Objective of the Project

To model the monthly Commodity Food Price Index from the year

2000 onwards using a time series analysis .

To forecast India's food price index for the next month(April) using

ARIMA model

Data Used
The data used has been obtained from www.indexmundi.com
The Commodity Food Price Index of 15 years(Monthly) has been taken

in the project.
The period taken into consideration is March 2000 to March 2015.

Commodity Food Price Index

Everyone eats. As a result, everyone is affected to some degree by food

price changes.
The Commodity Food Price Index is a measure of the monthly change

in international prices of a basket of food commodities. It consists of

the average of five commodity group price indices (representing 55
quotations), weighted with the average export shares of each of the
groups for 2002-2004.
Commodity Food Price Index includes Cereal, Vegetable Oils, Meat,

Seafood, Sugar, Bananas, and Oranges Price Indices.

Data Description

Graph 1
Following is a plot of data for each month from March 2000

onwards. We can see the wide fluctuations in Food Price Index in the
year 2008 owing to the financial downturn that was witnessed by the
world economy which had an impact on all the sectors.

Price
250

200

150

Price
100

50

Graph 2
The next plot depicts the yearly mean price index from the year

2000 onwards. It can be seen that the mean food price Index has been
rising from the year 2000 onwards.

Mean Price Index

200

180

160

140

120
Mean Price Index
100

80

60

40

20

0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Modelling the series

 The Box-Jenkins Methodology for univariate time-series has been

used.
To obtain the results EViews8 was used.
The three primary phases in building a Box-Jenkins Time Series Model
Phase I-Identification
Data Preparation by checking for and making series stationary
Model Selection by using ACF and PACF
Phase II-Estimation and Testing
Estimation of model deriving its MLE parameter estimates.
Diagnosticas check ACF/PACF of residuals
Phase III-Forecasting
Use models to forecast.

Phase I-Identification

Checking for Stationarity

For checking stationarity we used the Augmented Dickey-

Fuller test (ADF) on the price series.

Using the results of the test we found that the series is non

stationary
Results on following slide:

UNIT ROOT TEST FOR PRICE

Null Hypothes is : PRICE has a unit root
Exogenous : None
Lag Length: 1 (Autom atic - bas ed on SIC, m axlag=13)
t-Statis tic
Augm ented Dickey-Fuller tes t s tatis tic
Tes t critical values :
1% level
5% level
10% level

0.075322
-2.577945
-1.942614
-1.615522

Prob.*
0.7055

*MacKinnon (1996) one-s ided p-values .

Augm ented Dickey-Fuller Tes t Equation

Dependent Variable: D(PRICE)
Method: Leas t Squares
Date: 04/22/15 Tim e: 00:45
Sam ple (adjus ted): 3 181
Included obs ervations : 179 after adjus tm ents
Variable
PRICE(-1)
D(PRICE(-1))
R-s quared
Adjus ted R-s quared
S.E. of regres s ion
Sum s quared res id
Log likelihood
Durbin-Wats on s tat

Coefficient

Std. Error

t-Statis tic

Prob.

0.000171
0.466881

0.002270
0.066794

0.075322
6.989908

0.9400
0.0000

0.213725
0.209283
4.056647
2912.780
-503.6482
1.979674

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.

0.333352
4.562015
5.649701
5.685314
5.664142

 In order to make the series stationary we differenced the

original price series and generated a new series as price

1 with first difference
Next, we tested this new series for stationarity again by

using Augmented Dickey-Fuller test (ADF)

By observing the results we found that the new series in

stationary.
Results on following slide

UNIT ROOT TEST FOR PRICE 1

Null Hypothes is : PRICE1 has a unit root
Exogenous : None
Lag Length: 0 (Autom atic - bas ed on SIC, m axlag=13)

Augm ented Dickey-Fuller tes t s tatis tic

Tes t critical values :
1% level
5% level
10% level

t-Statis tic

Prob.*

-8.027300
-2.577945
-1.942614
-1.615522

0.0000

*MacKinnon (1996) one-s ided p-values .

Augm ented Dickey-Fuller Tes t Equation

Dependent Variable: D(PRICE1)
Method: Leas t Squares
Date: 04/22/15 Tim e: 00:40
Sam ple (adjus ted): 3 181
Included obs ervations : 179 after adjus tm ents
Variable

Coefficient

Std. Error

t-Statis tic

PRICE1(-1)

-0.532686

0.066359

-8.027300

R-s quared
Adjus ted R-s quared
S.E. of regres s ion
Sum s quared res id
Log likelihood
Durbin-Wats on s tat

0.265751
0.265751
4.045300
2912.873
-503.6511
1.980119

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.

Prob.
0.0000
-0.034581
4.720946
5.638560
5.656366
5.645780

PRICE
200
180
160
140
120
100
80
60
25

50

75

100

125

150

175

PRICE1
20

10

-10

-20

-30
25

50

75

100

125

150

175

Phase II-Estimation and

Testing

Model estimation
For initial values of AR and MA to model a mean

generating function, we use Correlogram ( ACF &

PACF).
Further We try different combinations of AR and MA

to make a suitable ARIMA model.

Use ACF and PACF to identify appropriate models.

Date: 04/22/15
Tim e: 01:06
Sam ple: 1 181
Included obs ervations : 180
Autocorrelation

Partial Correlation

AC
1
2
3
4
5
6
7
8
9
1...
1...
1...
1...
1...
1...
1...
1...
1...
1...
2...
2...
2...
2...
2...
2...
2...
2...
2...
2...
3...
3...
3...
3...
3...
3...
3...

0.462
0.194
0.023
0.064
-0.02...
-0.12...
-0.21...
-0.26...
-0.16...
-0.03...
0.055
-0.02...
-0.10...
-0.04...
0.069
0.031
-0.00...
-0.01...
0.063
0.061
0.028
-0.04...
-0.01...
-0.05...
-0.04...
-0.11...
-0.02...
-0.11...
-0.12...
-0.12...
0.004
0.072
0.090
0.153
0.161
0.155

PAC
0.462
-0.02...
-0.07...
0.109
-0.11...
-0.11...
-0.11...
-0.14...
0.037
0.064
0.060
-0.09...
-0.13...
0.020
0.044
-0.07...
0.025
0.017
0.076
-0.02...
-0.07...
-0.07...
0.069
-0.06...
-0.01...
-0.11...
0.119
-0.14...
-0.11...
-0.07...
0.102
0.088
0.026
0.051
0.041
0.008

Q-Stat

Prob

39.115
46.061
46.157
46.908
47.065
50.020
58.883
72.063
77.115
77.396
77.972
78.059
80.127
80.458
81.401
81.590
81.591
81.648
82.450
83.213
83.378
83.857
83.897
84.564
84.984
87.866
88.018
90.986
94.593
98.224
98.227
99.372
101.20
106.43
112.32
117.80

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

(2,1,2) ARIMA model

Dependent Variable: PRICE1
Method: Leas t Squares
Date: 04/22/15 Tim e: 00:58
Sam ple (adjus ted): 4 181
Included obs ervations : 178 after adjus tm ents
Convergence achieved after 38 iterations
MA Backcas t: 2 3
Variable

Coefficient

Std. Error

t-Statis tic

C
AR(1)
AR(2)
MA(1)
MA(2)

0.323378
-0.356228
0.078652
0.849953
0.337116

0.519277
0.265981
0.199671
0.257539
0.144118

0.622748
-1.339301
0.393908
3.300290
2.339173

R-s quared
Adjus ted R-s quared
S.E. of regres s ion
Sum s quared res id
Log likelihood
F-s tatis tic
Prob(F-s tatis tic)
Inverted AR Roots
Inverted MA Roots

0.233238
0.215509
4.052016
2840.459
-499.0955
13.15603
0.000000
.15
-.42+.40i

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Wats on s tat

-.51
-.42-.40i

AR (1) and AR(2) are not significant.

Prob.
0.5343
0.1822
0.6941
0.0012
0.0205
0.332135
4.574855
5.663994
5.753370
5.700238
2.002627

(2,1,4) ARIMA model

Dependent Variable: PRICE1
Method: Leas t Squares
Date: 04/22/15 Tim e: 09:37
Sam ple (adjus ted): 4 181
Included obs ervations : 178 after adjus tm ents
Convergence achieved after 32 iterations
MA Backcas t: 0 3
Variable

Coefficient

Std. Error

t-Statis tic

C
AR(1)
AR(2)
MA(1)
MA(2)
MA(3)
MA(4)

0.283847
1.158921
-0.759547
-0.711078
0.494012
0.163527
0.321004

0.617801
0.068222
0.063225
0.091795
0.095217
0.091151
0.084025

0.459446
16.98751
-12.01335
-7.746343
5.188289
1.794015
3.820340

R-s quared
Adjus ted R-s quared
S.E. of regres s ion
Sum s quared res id
Log likelihood
F-s tatis tic
Prob(F-s tatis tic)
Inverted AR Roots
Inverted MA Roots

0.295191
0.270460
3.907525
2610.956
-491.5973
11.93646
0.000000
.58+.65i
.66+.73i

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Wats on s tat

.58-.65i
.66-.73i

MA(3) is not significant.

-.31+.48i

Prob.
0.6465
0.0000
0.0000
0.0000
0.0000
0.0746
0.0002
0.332135
4.574855
5.602217
5.727343
5.652959
2.027108

-.31-.48i

(3,1,4) ARIMA model

Dependent Variable: PRICE1
Method: Leas t Squares
Date: 04/22/15 Tim e: 09:35
Sam ple (adjus ted): 5 181
Included obs ervations : 177 after adjus tm ents
Convergence achieved after 37 iterations
MA Backcas t: 1 4
Variable

Coefficient

Std. Error

t-Statis tic

C
AR(1)
AR(2)
AR(3)
MA(1)
MA(2)
MA(3)
MA(4)

0.298671
0.907052
-0.414339
-0.230172
-0.472554
0.255119
0.283872
0.405752

0.588436
0.243977
0.325189
0.217124
0.228338
0.234405
0.143706
0.100965

0.507567
3.717785
-1.274150
-1.060093
-2.069534
1.088369
1.975374
4.018761

R-s quared
Adjus ted R-s quared
S.E. of regres s ion
Sum s quared res id
Log likelihood
F-s tatis tic
Prob(F-s tatis tic)
Inverted AR Roots
Inverted MA Roots

0.297927
0.268847
3.921640
2599.095
-488.9312
10.24512
0.000000
.60+.64i
.66-.73i

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Wats on s tat

.60-.64i
.66+.73i

-.30
-.43-.48i

AR(2), AR(3) & MA(2) is not significant.

Prob.
0.6124
0.0003
0.2044
0.2906
0.0400
0.2780
0.0499
0.0001
0.340960
4.586313
5.615041
5.758596
5.673262
2.000051

-.43+.48i

(3,1,2) ARIMA model

Dependent Variable: PRICE1
Method: Leas t Squares
Date: 04/22/15 Tim e: 00:56
Sam ple (adjus ted): 5 181
Included obs ervations : 177 after adjus tm ents
Convergence achieved after 19 iterations
MA Backcas t: 3 4
Variable

Coefficient

Std. Error

t-Statis tic

C
AR(1)
AR(2)
AR(3)
MA(1)
MA(2)

0.333699
-0.892963
-0.287029
0.375963
1.396576
0.964087

0.565676
0.081777
0.102906
0.077938
0.037482
0.036342

0.589912
-10.91950
-2.789239
4.823885
37.26039
26.52815

R-s quared
Adjus ted R-s quared
S.E. of regres s ion
Sum s quared res id
Log likelihood
F-s tatis tic
Prob(F-s tatis tic)
Inverted AR Roots
Inverted MA Roots

0.246262
0.224223
4.039541
2790.360
-495.2153
11.17389
0.000000
.43
-.70-.69i

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Wats on s tat

-.66+.65i
-.70+.69i

-.66-.65i

All the parameters are significant.

Prob.
0.5560
0.0000
0.0059
0.0000
0.0000
0.0000
0.340960
4.586313
5.663450
5.771116
5.707115
2.003172

Diagnostic checking
Using (3,1,2) ARIMA model we find that all the

parameters are significant, hence this is model can

be used for forecasting.
We proceed to the next step i.e. diagnostic testing of

the model.

Correlogram of residuals
Date: 04/22/15
Tim e: 15:19
Sam ple: 1 181
Included obs ervations : 161
Autocorrelation

Partial Correlation

AC
1
2
3
4
5
6
7
8
9
1...
1...
1...
1...
1...
1...
1...
1...
1...
1...
2...
2...
2...
2...
2...
2...
2...
2...
2...
2...
3...
3...
3...
3...
3...
3...
3...

-0.49...
0.016
-0.00...
-0.01...
-0.00...
-0.00...
0.021
-0.03...
-0.00...
0.006
0.017
0.012
-0.05...
-0.03...
0.121
-0.09...
0.051
-0.07...
0.096
0.030
-0.01...
-0.09...
0.052
-0.04...
0.132
-0.19...
0.169
-0.08...
0.034
-0.09...
0.055
0.039
-0.06...
0.052
0.011
0.021

PAC
-0.49...
-0.30...
-0.21...
-0.17...
-0.15...
-0.13...
-0.08...
-0.10...
-0.11...
-0.11...
-0.08...
-0.03...
-0.10...
-0.21...
-0.07...
-0.14...
-0.11...
-0.23...
-0.15...
-0.02...
0.064
-0.06...
-0.05...
-0.11...
0.111
-0.12...
0.002
0.010
0.114
-0.08...
-0.11...
-0.05...
-0.02...
-0.04...
-0.03...
0.027

Q-Stat

Prob

40.527
40.570
40.575
40.596
40.596
40.597
40.669
40.836
40.837
40.843
40.894
40.921
41.492
41.683
44.306
45.823
46.301
47.332
49.045
49.210
49.240
50.976
51.491
51.836
55.175
62.600
68.160
69.440
69.669
71.417
72.020
72.330
73.256
73.818
73.846
73.942

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.001
0.001
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

Unit root test for stationarity of residuals

Null Hypothes is : D(RESID) has a unit root
Exogenous : None
Lag Length: 10 (Autom atic - bas ed on SIC, m axlag=13)
t-Statis tic
Augm ented Dickey-Fuller tes t s tatis tic
Tes t critical values :
1% level
5% level
10% level

-8.636451
-2.579315
-1.942805
-1.615400

Prob.*
0.0000

*MacKinnon (1996) one-s ided p-values .

Augm ented Dickey-Fuller Tes t Equation

Dependent Variable: D(RESID,2)
Method: Leas t Squares
Date: 04/22/15
Tim e: 15:17
Sam ple (adjus ted): 20 181
Included obs ervations : 162 after adjus tm ents
Variable

Coefficient

Std. Error

t-Statis tic

D(RESID(-1))
D(RESID(-1),2)
D(RESID(-2),2)
D(RESID(-3),2)
D(RESID(-4),2)
D(RESID(-5),2)
D(RESID(-6),2)
D(RESID(-7),2)
D(RESID(-8),2)
D(RESID(-9),2)
D(RESID(-10),2)

-8.352108
6.394433
5.494756
4.688108
3.969352
3.240392
2.571765
1.932902
1.246360
0.639663
0.181622

0.967076
0.922708
0.853548
0.770407
0.681566
0.586127
0.483985
0.380934
0.277041
0.174266
0.080966

-8.636451
6.930072
6.437550
6.085234
5.823872
5.528480
5.313730
5.074112
4.498833
3.670605
2.243192

R-s quared
Adjus ted R-s quared
S.E. of regres s ion
Sum s quared res id
Log likelihood
Durbin-Wats on s tat

0.832361
0.821259
4.703752
3340.918
-475.0068
1.999566

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.

Prob.
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0003
0.0263
0.022037
11.12582
6.000084
6.209736
6.085206

Diagnostic Checking
From the unit root test for residuals we find that

residuals are stationary

Adjusted R2 is around 82%

Phase III-Forecasting

Using above model, the FPI values for the month of April

has been predicted.

Variable

Coefficient

Std. Error

t-Statistic

Prob.

0.333699

0.565676

0.589912

0.556

-4.6

AR(1)

-0.89296

0.081777

-10.9195

-5.64

AR(2)

-0.28703

0.102906

-2.78924

0.0059

AR(3)

0.375963

0.077938

4.823885

MA(1)

1.396576

0.037482

37.26039

MA(2)

0.964087

0.036342

26.52815

Change in the price for the forecasted month =

Coefficient + AR(i)*price(-1) + MA(i)*Resid(-1)
Change in the prices for the forecasted
month

Forecast price for april 2015=

-3.76

0 4.22006
0
0.67803

-1.43478

142.52

Conclusion
The Commodity Food price index continues on

following the downward trend as per the model.