Determinants of Food Price Inflation in Ethiopia

Abstract

This paper explores determinants of food price inflation in Ethiopia during 1971-2013. Based on empirical and theoretical literature, the OLS estimate contain the dependent variable which is Food price inflation as a function of major explanatory variable i.e. money supply, Real GDP, Inflation expectation and world food price. The empirical result reveals that Food price in Ethiopia is determined both demand (money supply and expectation) and supply (output and world food price) factor. The short run dynamic error correction equation depicts that all the variables except money supply are statistically significant at 5% level in the model and they have expected sign. The finding also revealed that the adjustment coefficient for the estimated food price equation is statistically significant at 1% level and negative. It is incredibly fine with about 97 percent convergence of the short-run shock existing last year towards its long-run path in the current year.