International Commodity Prices and Inflation Dynamics in Sierra Leone

This study examines the impact of international commodity price changes, measured in local currency, on consumer prices in Sierra Leone. Monthly data from January 2007 to August 2016 are used to examine the long-run relationship and the short-run dynamics. The study finds the dynamics of cocoa, oil and rice prices as significant determinants of domestic consumer prices both in the long-run and the short-run. Domestic consumer prices are shown to respond negatively to rising cocoa prices, one of the country’s major export commodities. The study suggests deliberate efforts on the part of authorities for the improvement and expansion of production base of the country’s export commodities such as cocoa and rice, which the country has comparative advantage, to reduce the pressure on the local currency and the prevalent upward trend of consumer prices. A diversified energy source and an active production sector can reduce the overdependence on oil and, ultimately, the direct pass-through of commodity price fluctuations to consumer prices in the economy.