The Dynamics of Inflation in Ethiopia: a Case of Food Markets, 1965-2006

Course ID
Ethiopian Economics Association (EEA)
Taddesse Emiru Anley

This thesis tries to identify the major causes of food price inflation in Ethiopia, because not only food takes the lion’s share (60%, on average) of the Consumer Price Index (CPI) but also that food price inflation is higher than that of non-food 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 end, 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, however, structural variables like rainfall and government control on domestic food markets are significant price drivers. As a small open economy, domestic food markets are 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 to cause dependency syndrome on food producer farmers and hence 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

Corporate Author: Getnet Alemun & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Publisher: Ethiopian Economic Association (EEA)
ISBN/ISSN: 978-99944-54-14-7
Primary Descriptors: money supply

Secondary Descriptor: agriculture

Geographic Descriptors: Ethiopia
Cataloge Date: 02/27/2013
Broad Subject heading: Food price inflation
Call Number: 330.963 PRO 2010
Serial Key Title: Proceedings of the Seventh International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Volume: I
Publication date: 2013-05-27 23:10:00
Forum or Discussion date: 2013-02-27 15:02:21
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Taddesse Emiru Anley