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The study has examined the effect of variables such as food import, exchange rate,
and per capita GDP on food price inflation using quarterly data from 2006-
2019. The study employed Vector Error Correction Model and the adequacy of the
model was concurrently tested. The results show in the short run period the
coefficient of food import to have been positive but statistically insignificant,
implying that food import has no immediate effect on food price inflation. On the
other hand, the delayed time (long run) appeared to have a positive and significant
effect on food price inflation, other variables being constant. The rising food prices
are associated with dangers of imported inflation partially resulting from importing
raw materials for the agro-industry processing. In the same vein, the exchange rate
appears to have no immediate effect on food price inflation in the short run period,
but it has significant negative effects in the long run on food price inflation. The
result is partially explained by the periodic food export ban policy as exportation
declines due to appreciation of exchange rate leading to downward pressure on food
inflation. The Per capita GDP shows no immediate effect on food price inflation, but
does so in the long run. The coefficient of per capita GDP was negative and had a
significant effect on food price inflation. Meaning that in the long run a unit increase
in Per capita GDP decreases food price in the country. This happens because per
capita GDP may not be a good measure of growth of output because of income
inequalities. Since all variables showed a long run (delayed time) effect on food price
inflation therefore, the government through relevant bodies should continue to
review policies that foster reduction of food price inflation in the country within the
framework of monetary and non-monetary measures |
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