Determinants of food inflation in Ghana

Abstract

Studies on drivers of inflation have mostly concentrated on determinants of general inflation with drivers of food inflation less explored in the inflation literature and generally non-existent in the Ghanaian perspective which leaves lacuna in literature and incite research. The purpose of this study is in threefold: (i) to investigate the determinant of food inflation, (ii) to examine the association between the determinant of food inflation and inflation, and (iii) to examine the non-linear effect of the determinant of food inflation in Ghana. Secondary time series data from the World Bank from 2000 to 2021 was used. Toda and Yamamoto causality test, bound testing to cointegration, autoregressive distributed lag through the error correction model were employed as the data analysis technique. Results revealed that crude oil price, exchange rate and domestic food supply are the drivers of food inflation in Ghana. Again, there is a positive relationship between crude oil price and food inflation in the long and short run. Conversely, there is a statistically significant inverse association between both exchange rate, domestic food supply and food inflation in both runs. Findings revealed that exponential movement in crude oil price has a significant positive effect on food inflation. Notwithstanding, there is a significant negative effect of non-linear movement in exchange rate and domestic food supply on food inflation. The findings bring new insight to the discourse on inflation. The study implores the government to pursue policies that would strengthen the cedi, resources and farmers through the planting for food and jobs policy.