Exchange Rate Passthrough to Inflation: Evidence from Selected Sub-Saharan African Countries

This study investigates the extent and dynamics of exchange rate pass-through (ERPT) to inflation in Nigeria, Kenya, and Ghana over the period 2010Q1-2025Q3 using a dynamic panel framework. Motivated by the open-economy New Keynesian Phillips Curve, inflation is modeled as a function of monetary policy stance, market interest rates, exchange rate movements, external trade performance, and aggregate output. The empirical analysis applies the Pooled Mean Group (PMG) estimator within a panel ARDL framework, which allows for country-specific short-run heterogeneity while imposing long-run equilibrium convergence. Panel unit root tests confirm a mixture of I(0) and I(1) processes, validating the ARDL-PMG approach. The results provide strong evidence of a stable long-run relationship between inflation and key macroeconomic fundamentals across the three economies. Short-run dynamics, however, are highly heterogeneous. In Nigeria, exchange rate depreciation exerts large and immediate inflationary effects, indicating rapid and substantial pass-through driven by high import dependence. In Kenya, inflation responds more strongly to monetary policy adjustments and output fluctuations, with muted short-run exchange rate effects. Ghana exhibits delayed but broader ERPT, with lagged exchange rate movements, monetary indicators, and real-sector conditions jointly shaping inflation dynamics. The error-correction terms are negative and significant across countries, indicating gradual adjustment toward long-run equilibrium, though at differing speeds. Overall, the findings demonstrate that ERPT in Sub-Saharan Africa is incomplete, asymmetric, and strongly country-specific in the short run, despite a shared long-run structure. The study underscores the need for coordinated inflation-management strategies that combine credible monetary policy, exchange rate stabilization, and structural reforms aimed at reducing import dependence and strengthening productive capacity.