Time Series Modeling and Forecasting of Consumer Price Index in Ghana

Abstract

The knowledge of economic and financial indicators is the basis of making right decisions and sound judgment with respect to investment and allocation scare of resources. Such important indicators include the consumer price index, which measures the change in the prices paid by households for goods and services consumed. A trigger in the consumer price in Ghana causes inflation which affects the purchasing power of its citizens. Knowledge of the trend of the CPI is crucial in economic planning. The study therefore sought to construct the appropriate time series model for the CPI and then use the model to predict the next nine months CPI. The study further sought to determine the type of trend model that characterizes the CPI. The Box-Jenkins methodology was adopted. The results of analysis showed SARIMA(2, 1, 1)(1, 0, 0)12 as most fitted time series model and was used to predict the consumer price index for the next nine months. The S-model was also found to be the appropriate trend model for the CPI. The SARIMA (2, 1, 1)(1, 0, 0)12 is recommended for forecasting consumer price index in Ghana.