Macroeconomic Determinants of Inflation: An Empirical Analysis Using CPI and Key Economic Indicators

Inflation is a significant macroeconomic challenge in South Asia, adversely affecting purchasing power, income distribution, and economic sustainability. This study investigates the macroeconomic determinants of consumer price index (CPI) inflation across eight selected South Asian countries over the period 2011–2024. Using annual panel data obtained from the World Bank’s World Development Indicators (WDI) and the IMF’s International Financial Statistics (IFS), the study employs Fixed Effects, panel unit root tests, Pedroni and Kao cointegration tests, Dumitrescu–Hurlin causality analysis, FMOLS, and PMG-ARDL models. The findings confirm the existence of a stable long-run relationship between inflation and its key determinants. Inflation is significantly driven upward by exchange rate depreciation, export growth, and growth in remittance inflows, while higher real GDP growth contributes to reducing inflationary pressures. Foreign direct investment (FDI), however, has no significant long-run effect on inflation. The error-correction mechanism indicates a relatively rapid adjustment of short-run deviations toward the long-run equilibrium. These findings provide important policy implications for South Asian economies, particularly regarding exchange rate management, sustainable economic growth, and effective macroeconomic policies to maintain price stability and support long-term economic sustainability.