## Strengthening Inflation Forecasting in São Tomé and Príncipe

_Selected Issues Papers, July 16, 2025_

## Source details

**Canonical URL:** [Strengthening Inflation Forecasting in São Tomé and Príncipe](https://www.imf.org/en/publications/selected-issues-papers/issues/2025/08/22/strengthening-inflation-forecasting-in-so-tom-and-prncipe-569890)

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## Bibliographic details
- Authors: Alsis Cruz, Dilson Tiny, Bahrom Shukurov
- Published: July 16, 2025
- Series: Selected Issues Papers
- DOI: https://doi.org/10.5089/9798229022712.018

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### Summary and purpose
- Examines the drivers of inflation in São Tomé and Príncipe and develops a model for forecasting it.
- Finds that both supply and demand factors contribute to inflation in the country.
- Concludes that to effectively reduce and manage inflation, a comprehensive policy mix must address both supply and demand factors.

### Key findings on inflation drivers
- Supply-side factors:
  - Inflation inertia.
  - Import food prices.
  - Global or regional crises.
- Demand-side factors:
  - Weakened macroeconomic discipline in the leadup to elections (demand shocks).
- Overall assessment:
  - Both supply and demand shocks are important for inflation dynamics in São Tomé and Príncipe.

### Methodology and technical approach
- Forecasting framework:
  - Uses an Autoregressive Distributed Lag (ARDL) model (keyword explicitly listed: Autoregressive Distributed Lag (ARDL) model).
- Relevant technical concepts highlighted:
  - Inflation inertia.
  - Nominal effective exchange rate.
  - Pegged exchange rate regime.
  - VAT impact and value-added tax considerations.

### Policy implications and recommendations
- A comprehensive policy mix is required to effectively reduce and manage inflation.
- Policy design should explicitly address:
  - Supply-side measures to mitigate imported food-price shocks and to strengthen resilience to global/regional crises.
  - Demand-side measures to maintain macroeconomic discipline, particularly around electoral periods.

### Publication and metadata
- Authors: Alsis Cruz, Dilson Tiny, Bahrom Shukurov
- Date: July 16, 2025
- Series: Selected Issues Paper No. 2025/116
- Pages: 20
- Volume: 2025
- Issue: 116
- DOI: https://doi.org/10.5089/9798229022712.018
- Stock No: SIPEA2025116
- ISBN: 9798229022712
- ISSN: 2958-7875
- Subject and keywords: Economic forecasting; Exchange rate arrangements; Foreign exchange; Inflation; Nominal effective exchange rate; Prices; Taxes; Value-added tax; Autoregressive Distributed Lag (ARDL) model; inflation inertia; pegged exchange rate regime; policy mix; São Tomé and Príncipe; supply and demand shocks; VAT impact

*Source: "Strengthening Inflation Forecasting in São Tomé and Príncipe", Selected Issues Papers 2025/116, July 16, 2025. DOI: https://doi.org/10.5089/9798229022712.018*

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_Source: https://www.imf.org/en/publications/selected-issues-papers/issues/2025/08/22/strengthening-inflation-forecasting-in-so-tom-and-prncipe-569890_