- June 7, 2016
- Posted by: admin
- Category: Macroeconomic Management
By Charles Kamugisha
June 2015
The study aims at identifying the underlying factors to the inflation hikes over the period 1996Q1-2013Q4 in Rwanda. Stylized facts of inflation in Rwanda show that in 2006 and 2013, inflation averaged around 6.7%, but in some other periods inflation was more than single digit and far beyond the historical average. Thus, the question of interest was to know what determined inflation during the periods when inflation surged above the average. In our analysis we used secondary data, collected from official documents; Central bank (BNR) published reports and other sources. We transformed our data set and applied a two-step Engle-Granger econometric approach for empirical analysis.
Our estimation results show that both demand side and supply side factors played an important role in driving Rwanda’s inflation. Results show that money supply, real GDP growth, oil prices and real exchange rate positively affect inflation dynamics in Rwanda.
Owing to past experience, this study’s major recommendation is that future inflation management in Rwanda should include addressing supply side related bottlenecks. This is mainly because supply related shocks have proven to be significant determinants of inflation hikes in Rwanda over the period 1996Q1-2013Q4.