Global and domestic drivers of inflation: evidence from select South Asian countries

PurposeThis study empirically examines the impact of some domestic as well as global factors such as trade openness (TO), money supply (MS), exchange rate, global oil prices (GOPs) and interest rate (IR) on inflation.Design/methodology/approachThis study deploys a quantitative method considering 30 years of data (1991–2020) from four South Asian countries, namely, Sri Lanka, Pakistan, Bangladesh and India. To determine the potential impact of different factors on inflation, this study applies the panel analysis of the system generalized method of moments (SGMM).FindingsThis study empirically finds that TO, MS, exchange rate and GOPs have a positive impact on inflation, while IR and the structural adjustment program (SAP) have a negative impact on inflation. Out of the various determinants considered in this study, TO, exchange rate and the SAP are insignificant, while the rest of the variables are significant and consistent with previous studies.Practical implicationsThis study informs policymakers about maintaining price stability and fostering economic growth in South Asian nations. It breaks new ground as the first empirical examination of the International Monetary Fund (IMF)’s SAP impact on inflation in the region.Originality/valueThis study tries to find out whether the SAP of the IMF is responsible for inflation in South Asian countries. It gives renewed attention to the causality of inflation from the perspective of countries receiving loans from donors, especially the IMF.