Strengthening Inflation Forecasting in São Tomé and Príncipe

This paper examines the drivers of inflation in São Tomé and Príncipe and develops a model for forecasting it. It finds that both supply and demand factors contribute to inflation in the country. Supply-side factors consist of inflation inertia, import food prices, and global or regional crises, whereas factors affecting demand are associated with weakened macroeconomic discipline in the leadup to elections. To effectively reduce and manage inflation, a comprehensive policy mix must address both supply and demand factors.