Definition:

The indicator of food price anomalies (IFPA) identifies market prices that are abnormally high. The IFPA relies on a weighted compound growth rate that accounts for both within year and across year price growth. The indicator directly evaluates growth in prices over a particular month over many years, taking into account seasonality in agricultural markets and inflation, allowing to answer the question of whether or not a change in price is abnormal for any particular period.

Concepts:

The indicator of price anomalies (IFPA) relies on two compound growth rates (CGR’s), a quarterly compound growth rate (CQGR) and an annual compound growth rate (CAGR). A CGR is a geometric mean^[1] that assumes that a random variable grows at a steady rate, compounded over a specific period of time. Because it assumes a steady rate of growth the CGR smoothes the effect of volatility of price changes. The CGR is the growth in any random variable from time period $t_{A}$ to $t_{B}$ , raised to the power of one over the length of the period of time being considered.

${C X G R}_{t} = {(\frac{P_{t_{B}}}{P_{t_{A}}})}^{\frac{1}{t_{B} - t_{A}}} - 1$ (1)

where:

${C X G R}_{t}$ is the quarterly or annual compound growth rate in month t

$P_{t_{A}}$ is the price at the beginning of the period

$P_{t_{B}}$ is the price at the end of the period,

$t_{B} - t_{A}$ is the time in months between periods $A$ and $B$ .

¹

A geometric mean is a type of average, which indicates the typical value of a set of numbers by using the product of their values as opposed to the arithmetic mean which relies on their sum (Wikipedia, 2017) ↑

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