AN EMPIRICAL ANALYSIS OF MACROECONOMIC DETERMINANTS OF FOOD INFLATION IN PAKISTAN

Abstract

This study is an attempt to explore the factors affecting food inflation in Pakistan. the study examine the impact of money supply growth, population growth, interest rate, exchange rate, Per capita GDP growth, energy prices growth, incidence of natural disaster, and aggregate consumption expenditure on food inflation. The data spans the period from 1980 to 2019. The study uses Autoregressive Distributed lag (ARDL) model for short run and ARDL Bound Testing approach for long run estimates. In the short run, food inflation is significantly influenced by its lagged values (showing a dampening effect), per capita GDP, money supply growth, natural disasters, real interest rates, energy prices, and consumption expenditure. Lagged inflation and consumption expenditure have stabilizing effects, while the other variables, particularly GDP, money supply, and natural disasters, drive inflation upward. In the long run, similar factors like GDP, money supply growth, natural disasters, real interest rates, and consumption expenditure play significant roles. However, GDP and natural disasters show more pronounced effects, while real interest rates exhibit a negative influence. Unlike the short run, energy prices are not statistically significant in the long run. These findings emphasize the varying impacts of macroeconomic variables and shocks over different time horizons.