Abstract
In this paper, the Holt’s exponential smoothing and Auto-Regressive Integrated Moving Average (ARIMA) models were used to forecast inflation rate of Zambia using the monthly consumer price index (CPI) data from May 2010 to May 2014. Results show that the ARIMA ((12), 1, 0) is an adequate model which best fits the CPI time series data and is therefore suitable for forecasting CPI and subsequently the inflation rate. However, the choice of the Holt’s exponential smoothing is as good as an ARIMA model considering the smaller deviations in the mean absolute percentage error and mean square error. Moreover, the Holt’s exponential smoothing model is less complicated since you do not require specialised software to implement it as is the case for ARIMA models. The forecasted inflation rate for April and May, 2015 is 7.0 and 6.6 respectively.
Highlights
According to Ref. [1], inflation is a persistent rise in the general price levels of goods and services in an economy over a period of time
Zambia has been facing this challenge for so many years
The paper estimates an inflation threshold level of 22.5% for the observed data. These results indicate that economic growth in Zambia can be stimulated even in a moderately high inflation environment
Summary
According to Ref. [1], inflation is a persistent rise in the general price levels of goods and services in an economy over a period of time. [1], inflation is a persistent rise in the general price levels of goods and services in an economy over a period of time. Inflation has been one of the most economic challenges in the world, especially in developing countries. Zambia has been facing this challenge for so many years now. Keeping inflation at a low level has been one of the major goals of economic policymakers around the globe. The maintenance of price stability is one of the macroeconomic challenges that the Zambian government has been facing since its independence which is 50 years ago. [2], Zambia’s inflation rate was recorded at 7.8% in May of 2014, and averaged 9.45% from 2005 until 2014, reaching an all time high of 19.20% in April 2005 and a record of 6% was According to Ref. [2], Zambia’s inflation rate was recorded at 7.8% in May of 2014, and averaged 9.45% from 2005 until 2014, reaching an all time high of 19.20% in April 2005 and a record of 6% was
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