SUPPLY CHAIN DISRUPTIONS AND INFLATION DYNAMICS IN SIERRA LEONE: EVIDENCE FROM FREIGHT AND COMMODITY PRICE SHOCKS

Résumé

This study investigates the role of global supply chain disruptions in shaping inflation dynamics in Sierra Leone, with particular emphasis on freight costs as a transmission channel. As a highly import-dependent economy, Sierra Leone is especially vulnerable to external shocks, including exchange rate fluctuations, global commodity price movements, and rising shipping costs. Using monthly data from 2006 to 2024, the study employs an Autoregressive Distributed Lag (ARDL) model to estimate both short-run and long-run relationships, complemented by a Structural Vector Autoregression (SVAR) framework to analyse dynamic shock transmission. The results confirm the existence of a stable long-run relationship between inflation and its key determinants. Exchange rate depreciation emerges as the most significant driver of inflation, reflecting strong pass-through effects. Importantly, the findings reveal that a country-adjusted freight cost index—constructed by interacting global freight rates with Sierra Leone’s import dependence—is a statistically significant and economically meaningful determinant of inflation. The magnitude of the freight cost effect is comparable to that of global food and oil prices, highlighting the increasing importance of logistics costs in domestic price formation. SVAR-based impulse response functions show that freight cost shocks have persistent effects on inflation, peaking several months after the initial shock and dissipating slowly. Variance decomposition results further indicate that external shocks, particularly exchange rate and freight cost disturbances, account for a substantial share of inflation variability. On the whole, the study demonstrates that inflation in Sierra Leone is increasingly driven by global supply chain conditions. The findings suggest that effective inflation management requires not only monetary and exchange rate policies but also structural interventions aimed at improving trade logistics and reducing import dependence.

JEL: E31, F41, L91, Q02, R41