Bangladesh Bank Training Academy Journal

Abstract

This paper explores an empirical investigation on the main factors at work for causing food inflation in Bangladesh which takes into account both the demand and supply-side factors that affect food prices in Bangladesh. However, most of the supply-side factors would not be possible to include in quantitative estimation due to either paucity of data or lack of observable proxies.Therefore,while we explain argumentally with economic rationale, we use those quantitatively unobservable supply-side variables.We have done empirical exercise by using monthly secondary data from January 2001 to December 2013 of only four factors like Broad Money (M2), Wage Rate in Agriculture Sector (WRA), Food Stock (FS) and Indian Food Price Index (WPIF).The results of estimated regression analysis indicate that demand-side factors, such as Broad Money (M2)and Wage Rate in Agriculture Sector (WRA) have significant impacts on food prices whereas, supply-side factors such as Food Stock (FS) and Indian Food Prie Index (WPIF) play insignificant role. This paper also highlights pattern of food inflation and proper policy recommendations that have helped a lot to arrest the overall inflation at a tolerable level.