A Study on Determinants of Inflation in Rwanda from 1970–2013

Keeping low inflation rate is regarded as a measure of macroeconomic stability, to deal with it; determinants of inflation have to be well managed. This paper investigates the influence of government spending, import of goods and services, population growth, agriculture output and foreign direct investment on inflation. Time series data for the period of 1970–2013 have been used. The ordinary least squares (OLS) method was employed to estimate the regression model. We find that agriculture output and import of goods and services are the main drivers of inflation in Rwanda. Population growth is statistically significant and negative correlated with inflation. Therefore, government spending and foreign direct investment have an insignificant negative and positive impact on inflation respectively. Policy implications of the findings have been discussed.