AN EMPIRICAL ANALYSIS OF FACTORS AFFECTING FOOD (WHEAT) INFLATION IN PAKISTAN

This paper attempted to analyze the factors affecting food (wheat) inflation in Pakistan by using the annual data of time period 1981-2010. Johanson‟s Co-integration technique and Vector Error Correction Model (VECM) were used to check the long run and short run relationship among the variables. Results indicated that in the long run, per capita income had positive and statistically significant effect, while crude oil price had positive but statistically insignificant effect. In contrast, money supply and wheat support price had negative effect on food prices. In case of short run, lag value of food prices had positive, while money supply and wheat support price had negative effect. Although, crude oil prices and per capita income had positive effects yet these were statistically insignificant. To control food prices, it was suggested that food production may be encouraged by increasing wheat support prices. Moreover, Government may regulate prices of crude oil and input markets along with raising investment in agriculture sector.