SECOND ROUND EFFECTS AND PASS-THROUGH OF FOOD PRICES TO INFLATION IN KENYA

In the recent past, the Kenyan economy experienced persistent inflationary pressures, partly attributed to food price spikes. However, the quantitative role of food prices in inflation is not well understood or formally empirically analyzed in Kenya yet food occupies a weight of 36 percent in the consumer price index and contributes a monthly average of over 40 percent to overall inflation. Based on monthly data covering the period 1997-2012, this paper attempts to fill this gap by examining the relationship between food prices and inflation. The study used gap models and Phillips curve approaches to estimate the passthrough effects of food prices to both overall inflation and non-food non-fuel inflation. Based on gap models, the results confirm presence of second round effects from food prices to inflation while estimations of the Phillips curve suggest a domestic food price pass-through of 0.49 to overall inflation and 0.38 to non-food non-fuel inflation. The world food prices pass-through to overall inflation and non-food non-fuel inflation are estimated at 0.09 and 0.08, respectively. Thus this paper recommends usage of headline inflation to estimate trend inflation, enhanced communication to mitigate second round effects and that while monetary policy is very critical in anchoring inflationary expectations, there is mutual gain from a supportive fiscal policy in addressing supply side shocks.


Issue Date:
2015-07
Publication Type:
Journal Article
DOI and Other Identifiers:
ISSN 2147-8988 (Other)
E-ISSN: 2149-3766 (Other)
PURL Identifier:
http://purl.umn.edu/208852
Published in:
International Journal of Food and Agricultural Economics, Volume 03, Number 3
Page range:
75-87
Total Pages:
13
Series Statement:
Vol 3
No 3




 Record created 2017-04-01, last modified 2017-08-28

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