Abstract:
Empirical studies on the link between population dynamics and inflation are lacking in Ethiopia,
most likely reflecting the conventional wisdom that inflation is primarily a monetary
phenomenon. Therefore, to fill this research gap this paper analyzed how population dynamics
influence inflation in Ethiopia over the period of 1982-2015. The Johansen co-integration test
was used to see the presence of long-run relationship between population dynamics and inflation
and while the error correction models to see the short- and long-run relationships. The study
revealed that there was a positive and significant short- and long-run relationship between age
dependency ratio and the process of inflation in Ethiopia. Annual percentage growth rate of
GDP has also a significant and negative relationship with inflation. Therefore, to address this
macro-economic challenge the government should: 1. reduce the share of under age 15 children
by designing appropriate fertility control mechanisms, such as family planning, 2. increase the
working years for older population to encourage saving, and 3. ensure food security since food
prices are the main driving force behind the current soaring inflation.
