Prediction of CPI in Saudi Arabia: Holt’s Linear Trend Approach

Abstract

The Consumer Price Index (CPI) indicates and measures price level changes in an economy based on total purchased goods and services. CPI is calculated by dividing the cost of the market basket in a given year by the cost of the market basket in a Base Year and multiplied by 100. CPI is subject to the Classification of Individual Consumption by Purpose (COICOP) in Saudi Arabia. Home expenditure items, such as housing, water, electricity, gas, and other fuels, food, and beverages are considered high while weight, health, education, recreation, and culture are given low weight in the COICOP in Saudi Arabia. Holt’s linear model based on three equations and popularly known as double exponential smoothing or linear exponential model and the most commonly used method in forecasting data based on internal trends. Holt’s linear model is composed of three equations relating to smoothing, trend, and forecast. In this paper, the CPI data were taken monthly from the General Authority for Statistics, Saudi Arabia for the period from May 2019 to July 2020 with 15 realizations. The CPI for Saudi Arabia is predicted for the next twelve months and as observed from the trend of CPI, the prices of total purchased goods will increase in the next eleven months.