The Lahore Journal of Economics 17 : 1 (Summer 2012): pp. 101Ō128 The Determinants of Food Prices in Pakistan Henna Ahsan,  Zainab Iftikhar,  M. Ali Kemal  Abstract Controlling prices is one of the biggest tasks that macroeconomic policymakers face. The objective of this study is to analyze the demand- and supply-side factors that affect food prices in Pakistan. We analyze their long-run relationship using an autoregressive distributed lag model for the period 1970– 2010. Our results indicate that that the most significant variable affecting food prices in both the long and short run is money supply. We also find that subsidies can help reduce food prices in the long run but that their impact is very small. Increases in world food prices pressurize the domestic market in the absence of imports, which cause domestic food prices to rise. If, however, we import food crops at higher international prices, this can generate imported inflation. The error correction is statistically significant and shows that market forces play an active role in restoring the long-run equilibrium. Keywords: Food prices, ARDL estimation, Pakistan. JEL Classification: E64, Q11. 1. Introduction For macroeconomic policymakers, price control is one of their biggest tasks, but it is made all the more difficult when food prices rise more than usual, 1 given the number of external, structural, and demand factors involved in maneuvering food prices. Among others, these factors can include international food prices, subsidies, and the quantity of food crops produced in a particular year and previous years. According to Trostle (2008), the world market prices of major food items such as vegetable oil and food grainsōtwo essential items used in every householdōhave increased sharply by more than 60 percent in just two years. Chaudhry and Chaudhry (2008) cite World Bank data that reports an 83 percent increase in food prices during 2005 and 2008. Thus,  Staff Economist, Pakistan Institute of Development Economics (PIDE), Islamabad, Pakistan.  Staff Economist, PIDE, Islamabad, Pakistan.  Research Economist, PIDE, Islamabad, Pakistan. 1 The food consumer price index (CPI) constitutes 40 percent of the overall CPI basket (Janjua, 2005).