Disaggregated Short-Term Inflation Forecast (STIF) for Monetary Policy Decision in Sierra Leone

Abstract

The study focuses on developing a model of short-term inflation forecasting (STIF) in the context of monetary policy conceptualization. The research toolkit is accompanied using the Box-Jenkins Time Series Approach (ARIMA) to analyze inflation and its risks in Sierra Leone. The proposed model is based on diagrams characterizing the constituents of the Consumer Price Index (CPI) as the primary means of communication to inform the general public about the uncertainty surrounding the dynamics of prices in Sierra Leone. The author points out that such an approach to monetary policy forecasting will allow the use of expert judgment to stabilize the economy in the formation of key areas of monetary policy functioning and development. The article focuses on the interpretation of risks for each of the components of the CPI, which will enhance confidence in the financial and economic decisions made by the financial management of the Bank of Sierra Leone [BSL]. Empirical findings have shown that CPI components such as food and non-alcoholic beverages, housing and health indicate that financial shocks occurring in or outside Sierra Leone can significantly affect the overall CPI. It is stated that such a trend causes a fleeting effect of rising prices on consumer spending in the short term. The study postulates the uniqueness of the component model in the context of turning the key focus of financial management of business structures and government organizations to target sectoral events. As a result of the study, the conclusion is drawn about the need to monitor price volatility by empirically evaluating the components of the CPI basket in the forward-looking perspective. The importance of forecast is been resounded all around the globe, given its relevance in addressing the dynamics of macroeconomic variables and their significant implications for economic stabilisation and decision-making. Keywords: financial management, inflation, forecasting, consumer price index, CPI components; Sierra Leone.