The Determinants of CPI Inflation in Bangladesh, 1980-2016

This paper investigates the major determinants of CPI inflation in Bangladesh by employing Johansen?s Cointegration technique and the associated Vector Error Correction Model using the annual data series from 1980 to 2016. The study examines a wide range of variables covering all major sectors, such as money supply, exchange rate (monetary sector), GDP (real sector), exports, imports (external sector), government expenditure, government revenue (fiscal sector) to find the major determinants of CPI inflation. The paper finds that GDP and imports are the two major sources of CPI inflation while government revenue and money supply have a moderate effect on CPI inflation in the long run. The study also reveals that exports, government expenditure, and exchange rate do not cause CPI inflation rather negatively affect CPI inflation in Bangladesh. In the short run, the previous year?s CPI inflation has a strong influence, while the previous year?s imports has a moderate influence on the current year?s CPI inflation in Bangladesh.