Modelling and Forecasting Somalia's Consumer Price Index Using the ARIMA Model

This study examines the modeling and forecasting of Somalia’s Consumer Price Index (CPI) using the ARIMA model, with data from November 2022 to November 2024. Descriptive analysis reveals a mean CPI of 144.26, moderate variability, and a slight negative skew. The CPI series is unstable in its original form but achieves stability after first differencing. The ARIMA (1,1,0) model is selected as the best fit, based on its low AIC and BIC values, with diagnostic checks confirming its effectiveness in capturing the data patterns. Forecasts suggest a stable CPI of approximately 152.95 from December 2024 to November 2026, though prediction intervals widen over time, reflecting increased uncertainty. The model performs well, with a Mean Absolute Percentage Error (MAPE) of 6.18%, though slight underestimation bias is noted. These findings demonstrate that ARIMA forecasts can aid policymakers in designing effective inflation control measures in volatile economies. These insights can help the Central Bank and policymakers implement timely interventions to stabilize prices and manage inflation expectations. Future research should incorporate external economic factors for more robust long-term predictions.