Food Price Inflation and its impact on Pakistan’s Economy

Abstract

Food Price inflation an economic challenge in global world. The objective of the study is to examine the demand pull and cost push variables that affect food prices inflation. We use time series annual data from 1980-2013. Data is generated from various issues economic survey of Pakistan and world development indicators. We applied ADF test, Johansen’s co-integration technique, and VECM to analyze the long term and short run relationship between the variables. The result obtained from double log model explores that most significant demand pull and cost push variables are fertilizer prices, fuel prices, money supply, per capita GDP, and foreign aid which are positively related with food prices while exchange rate is inversely related with food prices in Pakistan. The error correction model is also statistically significant and shows that market forces play an active role in restoring long-run equilibrium.

Keywords: Food Price Inflation, Johansen’s co-integration, Fuel Prices, Fertilizer Prices, Money Supply, Per capita GDP, Foreign Aid.