Abstract
The recent upsurge in food prices in Sri Lanka has raised significant concerns, posing a threat to the food and nutritional security of the population. However, the causal factors driving this inflation still need to be better understood. Our study, utilizing Cointegration and Vector Error Correction Models (VECM), investigates the role of supply and demand-side determinants of food inflation. The study identified changes in exchange rate, agricultural wages, fuel prices, money supply, and fertilizer prices as key drivers of food inflation in Sri Lanka. Expansion of the money supply exerted the most substantial influence on food inflation in the long run. At the same time, changes in world market prices were found to be the most influential determinants of food inflation in the short run. Findings underscore the need for a comprehensive strategy that combines supply-side enhancements and demand-side management to control food inflation in Sri Lanka.
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