Selected Issues Papers

Inflation Dynamics in the West African Economic and Monetary Union: WAEMU

Author/Editor:

Cecilia Melo Fernandes

Publication Date:

June 19, 2023

Electronic Access:

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Summary:

This paper analyzes recent inflation developments in the WAEMU. As in all inflation spikes in the past two decades, food is the main driver of inflation. The contribution from energy prices is also increasing, while inflation contagion effects are still limited to a few sectors. The share of professionals that believe that inflation will continue above the target within the one-year horizon is at high levels compared to 2021. Based on projections from two models, the chapter also evaluates the appropriate monetary policy responses to the recent inflationary pressures. The results suggest that inflation is expected to converge to its target range within 24 months given the reduction of exogenous shocks weighing-in on food and energy prices, the exhaustion of base effects as well as a reduction in supply and demand imbalances. However, numerous external and internal factors affect inflation prospects and should be carefully monitored, given the pronounced uncertainty surrounding geopolitical and economic developments, and further monetary policy tighten would be necessary unless downside risks to forecasts for baseline inflation and external buffers improve.

Series:

Selected Issues Paper No. 2023/038

Subject:

Commodity price shocks Food prices Inflation Inflation persistence International organization Monetary policy Prices

Frequency:

Regular