This paper evaluates the impact of food prices inflation on consumption expenditure and poverty status using panel data of 1,078 rural households collected in 2004 and 2009 from four regional states in Ethiopia. The study revealed that the incidence of poverty was 37% in 2004 and increased to 54% in 2009 while the inflation rate between these two periods was 308.09%. The random effect regression results indicate that the use of fertilizer, livestock holding, participation in off-farm activities, family size and land size significantly determine poverty status. Controlling these factors, the level of poverty was also found to increase with the rise in prices of grains. The study also predicts that a one-per-cent rise in grain prices is expected to increase the incidence of poverty, the poverty gap and the severity of poverty by 0.25%, 0.13% and 0.08%, respectively. Also controlling for production related shocks, it was found that the rapid rise in the price of grains was responsible for the observed increase in poverty between the two periods. The policy implication is that the country’s overriding objective of reducing poverty cannot be achieved without reducing the negative impact of rapidly rising grain prices.


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