The Dynamics of Food Price Inflation in Ethiopia
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Date
2008-10
Authors
Emiru, Taddesse
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
This thesis tries to identify the major causes of food price inflation in Ethiopia, because not only food
takes the hones share (60%, on average) of the consumer Price index (CPI) but a/so that food price
inflation is higher than that of 1I0llfood items despite food security is the nation's priority agenda in
the Millennium Development Goals (MDGs). The study aims at identifying the major determinants
of food price inflation, testing their significance and suggesting policy options to help curb the problem.
To this and, annual time-series data on food price index and other variables for the period 1965-
2006 (for Model 1) and 1963-2006 (for Model 2) are used from various sources and a Vector
Error-correction approach employed. the long-run estimates show a single cointegrating equation in
both models and their results support the monetarist contention that money supply is the only
significant source of inflation and the direction of causality flows from the money supply (proxied by
broad money M2) to food price inflation and not vice versa; but the Keynesian output gap in
agriculture doesn't matter to food price inflation. in the short-run, bow ever; structural variables like
rainfall and government control on domestic food markets are significant price drivers. As a small
open economy, domestic food markets at. also found to be significantly affected by world food price
inflation indicating the relevance of theories of imported inflation in domestic food markets. Besides,
food aid is found is cause dependency syndrome on food producer farmers and pence exacerbating food
price inflation. The impulse response analyses in this study suggest agriculture-led sustained economic
growth as one way for a lasting solution to curb the malady of food price inflation if combined with
tight policies of money supply. finally, active and selective interventions by the government in the food
market is found to be a short-run remedy to curb, at least, 'artificial' inflation of food prices.
KEY TERMS: food price inflation, money supply and agriculture
Description
Keywords
Food Price Inflation, Dynamics