Domestic and External Drivers of Inflation: The Gambia

This paper investigates the drivers of headline inflation and the degree of exchange rate passthrough (ERPT) in The Gambia over the period 2014-2023. The analysis highlights the decisive long-term roles of global prices of commodities (food, oil and fertilizer), the exchange rate, and the domestic output gap. The short-run dynamics of inflation points to the roles of global food price and the second-round effects of changes in food prices and the output gap. Monetary policy has the potential to tame inflation in the short run provided the monetary policy rate is adjusted rapidly and boldly. Lastly, there is evidence of an asymmetric ERPT to domestic prices, and the size of currency depreciation matters for inflation dynamics.