Measuring the Costs of Food Price Inflation due to Implementation of Targeted Subsidy Reform Program on Urban Households in Sistan and Baluchestan Province

The aim of the present study is to measurement and analysis of food price inflation due to implementation of Targeted Subsidy Reform program on urban households in Sistan and Baluchestan province. For this purpose, firstly to evaluate composition and changes in household consumption basket Engel functions for food and non-food items in years 2009 and 2012 were estimated. In the next step Quadratic Almost Ideal Demand System (QUAIDS) for all food groups in mentioned years was estimated, Then, Compensating Variation (CV) criterion was computed to measuring the consumer’s welfare changes based on Taylor series expansion method and using the results from the estimated QUAIDS model. Income elasticities of Engel Functions showed that after the implementation of Targeted Subsidy Reform program by the end of 2012, none of the food and non-food products consumption status has not changed. The results of the CV computing indicated that in this period, the urban Sistan and Baluchestan households on average were lost 11,008,222 Rials of their income due to rising food prices after the implementation of the first phase of Targeted Subsidy Reform program. This amount is equivalent to 61.73 percent of the food budget and 19.94 percent of their total income.