The determinants of inflation in Kenya (1970 – 2013)

Abstract

his paper sought to establish the main determinants of inflation in Kenya for the period 1970-2013 by using both theoretical and empirical literature reviewed to explain the process of inflation causation in Kenya. The study used ordinary least squares for estimation of time series data covering the period 1970-2013. One equation was regressed and the following variables were regressed on the annual inflation rate that is the money supply, Central bank rates, Exchange rates, wages, food prices, oil price, Political instability and corruption. The study revealed that, there was a negative relationship between food price and inflation level, Central bank rates was found to be statistically significant at 5% level of significance in causing the variation in inflation rate. Money supply (M2) and exchange rate had a positive relationship with the inflation rate while GDP growth rate and the corruption perception had a negative relationship with inflation. Wage rate coefficient was found insignificant in causing the changes in inflation with political instability having no effect on inflation.