Abstract
Inflation refers to increase in general level of price of a basket of goods and services that is representative of an economy over a period of time. When there is a general rise in price level the entire economy will be affected. Rising price known as inflation impact the cost of living, the cost of doing business, borrowing money and every other facet of the economy. Several factors are responsible for rise in price level in a given country/nation. The main aim of this study is to assess the determinants of inflation in Africa based on empirical studies conducted in the past and give insights for other researchers. For this purpose, concentrated and careful literature review was done on 13 papers conducted in 13 African countries. Seven variables were considered for analysis such as broad money supply, GDP, price of imported goods and services, exchange rate, interest rate, price expectation and population growth. The result shows that output/national income, broad money supply, price of imported goods and services and exchange rate are the critical variables affecting the performance of inflation. The others variables: interest rate, price expectation and population growth are also slightly important in explaining inflation. In the literature selected for review it is observed that almost all are used macro variables without considering other factors such as political, social institutional and others. The study finally recommends that countries should seriously work in creating moderate inflation to grow their economy by increasing their national income in addition to stable fiscal and monetary policy and also focusing on the aforementioned factors is crucial. I declare that this is my own work and it is original.
Highlights
Inflation lowers the purchasing power of the people as they need more money to purchase one unit of good or service
For most of African countries it is challenging for monetary authorities to control inflation even if there is a political will, due to weak institutional frameworks, thin financial markets and imperfect competition among banks [11]
The review mainly focuses on the variables affecting long run inflation
Summary
Inflation lowers the purchasing power of the people as they need more money to purchase one unit of good or service. People spend huge amount of money for consumption. Saving and investment decline as result: resulting in higher unemployment and lower economic growth. To overcome the hindrance of inflation in economy, most of central banks in developed and developing countries have the core objective to keep inflation at minimum rate for achieving and maintaining high economic growth [13]. For most of African countries it is challenging for monetary authorities to control inflation even if there is a political will, due to weak institutional frameworks, thin financial markets and imperfect competition among banks [11]. High and volatile inflation can be damaging to businesses and consumers, but to the economy as a whole
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