How does the usage of banking services relate to inflation in developing economies? evidence from africa

The existing literature on the relationship between financial inclusion (FI) and inflation rate (IR) in developing economies suffers from three main limitations: general reliance on aggregate FI measures that fail to isolate the effects of specific FI dimensions, limited attention to endogeneity, and mixed empirical findings regarding the direction of the relationship. To address these gaps, this study uses the Panel Autoregressive Distributed Lag approach to scrutinize the specific relationship between usage of banking services (UBS) -proxied by a composite of outstanding deposits and loans from commercial banks as a percentage of GDP- and IR using 2004–2021 data from 10 low and lower-middle-income Sub-Saharan African countries. The findings reveal a positive association between UBS and IR, consistent with the Keynesian Demand-Pull Inflation hypothesis, which postulates that expanded banking services can exert upward pressure on prices by creating excess aggregate demand. Theoretical contributions, policy implications, limitations, and recommendations for future research are discussed.