Faculty of Economics, energy and management sciences

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The Effect of Government Expenditure, World Food Prices and World Fuel Prices on Inflation Rate in Uganda.
(2023) Kafuko, Cynthia Grace
This study investigates the effect of government expenditure, world food price and world fuel price on inflation rate and their causal direction. Employing the Vector Error Correction Model (VECM) and the two-step granger causality test, the study establishes that government expenditure has a positive and significant effect on the rate of inflation in the long run. World fuel prices is established to have a positive and significant effect on inflation rate both in the short run and in the long run. The study further establishes a positive effect of world food price on inflation rate but it is only significant in the short run. Further, a bi-directional granger causality relationship is established to exist between the rate of inflation and each of the independent variables. The study recommended that government should closely monitor the dynamics in world food and energy prices in order to curtail their secondary effects on domestic prices. Massive investment in agricultural sector, especially in rural areas to increase food production and reduce importation of food. It further recommends for government investments in renewable energy that’s more affordable and sustainable.