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Inflation Dynamics and Food Prices in Ethiopia

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  • Durevall, Dick

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Loening, Josef L.

    (World Bank)

  • Birru, Yohannes A.

    (National Bank of Ethiopia)

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.

Suggested Citation

  • Durevall, Dick & Loening, Josef L. & Birru, Yohannes A., 2010. "Inflation Dynamics and Food Prices in Ethiopia," Working Papers in Economics 478, University of Gothenburg, Department of Economics, revised 03 Jun 2013.
  • Handle: RePEc:hhs:gunwpe:0478
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    Cited by:

    1. Berhane, Guush & Abay, Mehari & Woldehanna, Tassew, 2015. "Childhood Shocks, Safety nets and Cognitive Skills: Panel Data Evidence from Rural Ethiopia," 2015 Conference, August 9-14, 2015, Milan, Italy 210868, International Association of Agricultural Economists.
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    4. Matthias Kalkuhl & Lukas Kornher & Matthias Kalkuhl & Irfan Mujahid, 2015. "Food price volatility in developing countries – the role of trade and storage," EcoMod2015 8415, EcoMod.
    5. Nguyen, Anh D.M. & Dridi, Jemma & Unsal, Filiz D. & Williams, Oral H., 2017. "On the drivers of inflation in Sub-Saharan Africa," International Economics, Elsevier, pages 71-84.
    6. Al-Maadid, Alanoud & Caporale, Guglielmo Maria & Spagnolo, Fabio & Spagnolo, Nicola, 2017. "Spillovers between food and energy prices and structural breaks," International Economics, Elsevier, pages 1-18.
    7. Alem, Yonas & Colmer, Jonathan, 2015. "Consumption smoothing and the welfare cost ofuncertainty," LSE Research Online Documents on Economics 63816, London School of Economics and Political Science, LSE Library.
    8. Dick Durevall & Bo Sjö, 2012. "Working Paper 151 - The Dynamics of Inflation in Ethiopia and Kenya," Working Paper Series 400, African Development Bank.
    9. repec:cep:stieop:59 is not listed on IDEAS
    10. Aron, Janine & Muellbauer, John & Sebudde, Rachel, 2015. "Inflation forecasting models for Uganda: is mobile money relevant?," CEPR Discussion Papers 10739, C.E.P.R. Discussion Papers.
    11. Hernandez, Manuel A. & Rashid, Shahidur & Lemma, Solomon & Kuma, Tadesse, 2015. "Institutions and market integration: The case of coffee in the Ethiopian commodity exchange:," IFPRI discussion papers 1464, International Food Policy Research Institute (IFPRI).
    12. Yonas Alem & Jonathan Colmer, 2015. "Consumption smoothing and the welfare cost of uncertainty," GRI Working Papers 118b, Grantham Research Institute on Climate Change and the Environment.
    13. Emre Alper & Niko A Hobdari & Ali Uppal, 2016. "Food Inflation in Sub-Saharan Africa; Causes and Policy Implications," IMF Working Papers 16/247, International Monetary Fund.
    14. Yonas Alem & Jonathan Colmer, 2015. "Consumption Smoothing and the Welfare Cost of Uncertainty," CEP Discussion Papers dp1369, Centre for Economic Performance, LSE.
    15. Hyun-Hoon Lee & Suejin A. Lee & Jae-Young Lim & Cyn-Young Park, 2016. "Effects of food price inflation on infant and child mortality in developing countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(5), pages 535-551, June.
    16. Andinet Woldemichael & Kidane Daniel & Shimeles Abebe, 2017. "Working Paper 276 - A Tax on Children? Food Price Inflation and Health," Working Paper Series 2393, African Development Bank.
    17. Misati, Roseline Nyakerario & Munene, Olive, 3. "Second Round Effects And Pass-Through Of Food Prices To Inflation In Kenya," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3(3).
    18. Ulrik Beck, 2015. "Keep it real: Measuring real inequality using survey data from developing countries," WIDER Working Paper Series 133, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Ethiopia; Commodity Prices; Food Policy; Food Prices; Global Food Price Crises; Monetary Policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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