Exploring the Correlation Between Monetary Policy and Food Inflation in Zambia

Abstract

This study provided empirical analysis for the relationship between monetary policy and food inflation in Zambia within the time period of the first quarter of 2016 to the second quarter of 2023. It studied this relationship isolating food inflation from overall inflation to provide better policy implications that can enhance welfare for the Zambian populace. The Autoregressive Distributed Lag Model and the Error Correction Model were employed for the short run and long run analysis respectively. The findings postulate that there exists a significant relationship between monetary policy and food inflation. The monetary policy rate and the growth in the broad money have a destabilising relationship with food inflation. The depreciation in the domestic currency to foreign currency increase food inflation in the long run. Whereas the exchange rate channel plays a role of greater significance amongst the studied monetary policy tools. Inflation targeting, although significant, adds inflationary pressure of domestic food inflation, highlighting the need for stern policies that can individually factor in food inflation.