Macroeconomic determinants of inflation in Somalia implications from oil prices, exchange rates, government expenditure, and economic growth

Inflation remains a major macroeconomic challenge in Somalia, where external shocks, fiscal conditions, and structural constraints influence domestic price stability. This study examines the long-run and short-run effects of oil prices, exchange rates, government expenditure, and GDP on the consumer price level using annual data from 1991 to 2021. It contributes to the literature by jointly examining these external, fiscal, and real-sector determinants within a single empirical framework, with particular attention to government expenditure in the Somali context. The autoregressive distributed lag (ARDL) bounds-testing approach is employed to estimate long-run relationships and short-run dynamics. The results confirm a stable long-run relationship among the variables. GDP exhibits the strongest positive association, with a 1% increase associated with a 1.56% increase in the consumer price level. Oil prices and exchange-rate depreciation also have significant positive effects of approximately 0.43 and 0.20%, respectively, while government expenditure has a significant negative relationship with the consumer price level. Short-run results reveal significant price-level persistence, strong contemporaneous and lagged GDP effects, a delayed negative effect of government expenditure, and rapid adjustment toward long-run equilibrium. The findings highlight the importance of coordinated growth, fiscal, and exchange-rate policies for price stability and provide evidence relevant to SDG 8 (Decent Work and Economic Growth), SDG 10 (Reduced Inequalities), and SDG 16 (Peace, Justice and Strong Institutions), with implications for other fragile and post-conflict economies.