Inflation Dynamics and Food Prices in Ethiopia

Dick Durevall (), Josef Loening and Yohannes A. Birru
Additional contact information
Dick Durevall: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Yohannes A. Birru: National Bank of Ethiopia

No 478, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: During the global food crisis, Ethiopia experienced an unprecedented increase in inflation, among the highest in Africa. Using monthly data over the past decade, we estimate models of inflation to identify the importance of the factors contributing to CPI inflation and three of its major components: cereal prices, food prices, and non-food prices. Our main finding is that movements in international food and goods prices, measured in domestic currency, determined the long-run evolution of domestic prices. In the short run, agricultural supply shocks affected food inflation, causing large deviations from long-run price trends. Monetary policy seems to have accommodated price shocks, but money supply growth affected short-run non-food price inflation. Our results suggest that when analyzing inflation in developing economies with a large food share in consumer prices, world food prices and domestic agricultural production should be considered. Omitting these factors can lead to biased results and misguided policy decisions.

Keywords: Ethiopia; Commodity Prices; Food Policy; Food Prices; Global Food Price Crises; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E31 E37 O55 Q17 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2010-12-09, Revised 2013-06-03
New Economics Papers: this item is included in nep-afr, nep-agr, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Journal Article: Inflation dynamics and food prices in Ethiopia (2013)
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