Inflation dynamics and food prices in 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 nonfood 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.

The effects of agricultural trade openness on food price transmission in Latin American countries

“…Thus, we used money supply (M2) or alternatively the national unemployment rate (Unemp) as a proxy for total demand. Aggregate supply was proxied by world oil prices (Pw oil ) because an increase in oil prices is followed by an increase in input costs which in turn affects agricultural supply (see Hanson, 1993;Nazlioglu & Soytas, 2011;Durevall et al 2013) and also has been considered in the literature as shifter in the formation process of marketing margins in food chains (Leibtag, 2009;Davidson et al, 2011). If we subsume marketing margins (margin) and trade wedges (ta) under a trade openness indicator (top), domestic agricultural consumer food prices can be expressed by the following function:…”

“…We use our estimation results to calculate actual transmission rates in crises years. Complementary to international market forces, we follow Durevall et al (2013) and include some domestic macroeconomic causes possibly influencing food price movements.…”

“…Moreover, most previous studies on price transmission do not control for domestic food price determinants or the effects from movements in exchange rates. To our knowledge, only Dawe & Slayton (2010), Baek & Koo (2014) and Baquedano & Liefert (2014) take into account exchange rate effects, and Durevall et al (2013) also consider agricultural supply and demand shifters. In contrast to many other papers, our analysis studies changes in food consumer price indices (CPI), instead of specific food items.…”

Dynamic Relations of Consumer Prices: A Case Study of Recent Effects on the Japanese Headline CPI

“…Manzan and Zerom (2013) found that some macro indicators, such as housing starts, unemployment rates, and the term spreads, showed significant out-of-sample forecasting power for the distribution of the US core inflation. Further, using monthly data of Ethiopia over 10 years, Durevall et al (2013) estimated models of inflation to clarify the important factors contributing to CPI inflation and its major components of food prices, non-food prices, ISSN 2329-9150 2016 and cereal prices. Furthermore, using the testing method suggested by Homm and Breitung (2012) and the US data from 1982 to 2010, Arora et al (2013) identified the periods when the headline price index in terms of personal consumption expenditures (PCEs) largely fluctuates relative to the core PCE.…”

World Food System Disruptions in the Early 2000s: Causes, Impacts, and Cures

“…Put differently, several products can increase in price as a consequence of an increase in grain prices. Non‐core inflation in turn put pressures on wages and other consumption goods in particular in developing countries or emerging economies (IMF 2011; Durevall, Loening, and Birru 2013; Hui 2013). Central banks, however, typically fight only non‐core inflation with monetary policy interventions neglecting food price changes as root cause of price increases (IMF 2011).…”