This thesis tries to identify the major causes of food price inflation in Ethiopia, because not only foodrntakes the hones share (60%, on average) of the consumer Price index (CPI) but a/so that food pricerninflation is higher than that of 1I0llfood items despite food security is the nation's priority agenda inrnthe Millennium Development Goals (MDGs). The study aims at identifying the major determinantsrnof food price inflation, testing their significance and suggesting policy options to help curb the problem.rnTo this and, annual time-series data on food price index and other variables for the period 1965-rn2006 (for Model 1) and 1963-2006 (for Model 2) are used from various sources and a VectorrnError-correction approach employed. the long-run estimates show a single cointegrating equation inrnboth models and their results support the monetarist contention that money supply is the onlyrnsignificant source of inflation and the direction of causality flows from the money supply (proxied byrnbroad money M2) to food price inflation and not vice versa; but the Keynesian output gap inrnagriculture doesn't matter to food price inflation. in the short-run, bow ever; structural variables likernrainfall and government control on domestic food markets are significant price drivers. As a smallrnopen economy, domestic food markets at. also found to be significantly affected by world food pricerninflation indicating the relevance of theories of imported inflation in domestic food markets. Besides,rnfood aid is found is cause dependency syndrome on food producer farmers and pence exacerbating foodrnprice inflation. The impulse response analyses in this study suggest agriculture-led sustained economicrngrowth as one way for a lasting solution to curb the malady of food price inflation if combined withrntight policies of money supply. finally, active and selective interventions by the government in the foodrnmarket is found to be a short-run remedy to curb, at least, 'artificial' inflation of food prices.rnKEY TERMS: food price inflation, money supply and agriculture