Abstract
One of the economic indicators that are necessary to provide information on the state and progress of country is the Consumer Price Index (CPI) which measures changes in the price of goods and services over a certain period of time. An effective monetary policy depends on the ability of economists to develop a reliable model that could understand the ongoing economic processes and predict future developments. Hence, this study is aimed at estimating CPI (a component of Inflation) in 20 Sub–Sahara African (SSA) countries in relation to Broad Money (BM), Export Rate (EXP), Gross Domestic Product (GDP) and Private Consumption Expenditure (PCE) using panel data approach. The data was extracted from the World Bank Data Bank for a period of 30 years (1987-2016). The Fixed Effect Model (FEM) was employed and the model summary was computed using the panel least squares. The Variance Inflation Factor (VIF) was used to test for the presence of multicollinearity. The result of the analysis shows that the CPI for SSA countries ranges from 0.0007% to 298.51% (2010=100) with an average of 59.76%. All the predictors included in estimating the CPI have significant effect at 5% level except the GDP. The estimated panel regression equation is CPIit=71.4449-0.1735BMit-0.3309EXPit+7.4338e-12GDPit+1.1335e-10PCEit. The estimated coefficient of determination is 0.853 which means that 85.3% of the total variation in CPI can be accounted for by the variations in the macroeconomic variables included. The VIF for all the variables is less than 3.o meaning that there is no sign of multicollinearity and therefore, there is no correlation among the predictors. It was concluded that the FEM estimated can be used to assess the behavior of the CPI in the nearest future. Moreover, 85.3% of the variations in CPI can be explained by the economic variables used as independent variables. It is recommended that efforts should be geared towards improving the input of these variables in the economy such that appropriate relationship will exist between them and the CPI in the SSA nations.
Highlights
The robust expansion being accompanied by stabilizing inflation on the African continent, with the Consumer Price Index (CPI) for all Africa declining to 7.8% from more than 13% in 2008 and the continents CPI remaining less than 8% since 2013 (Bloomberg data show)
This is because the correlation between the explanatory variables and the idiosyncratic error term is zero (0). They are not correlated whatsoever. It is evident from the data and the analysis that inflation in sub-Sahara African countries is on the high side
This is observed from the incessant increase in the CPI which is a measure of the changes in the price level of market basket of consumer goods and services purchased by households including foreign goods
Summary
Sub-indices and sub-sub-indices are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index. It is one of the several price indices calculated by most national statistical agencies. The index is usually computed monthly, or American Journal of Theoretical and Applied Statistics 2019; 8(6): 246-252 quarterly in some countries, as a weighted average of subindices for different components of consumer expenditure, such as food, housing, shoes, clothing, each of which is in turn a weighted average of sub-sub-indices
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