The Inflation Forecasting of Major Cities In East Kalimantan: A Comparison Of Holt-Winters And SARIMA Model

Abstract

This research aims to compare the performance of Holt Winters and Seasonal Autoregressive Integrate Moving Average (SARIMA) models in predicting inflation in Balikpapan and Samarinda, two biggest cities in East Kalimantan province. The importance of East Kalimantan province cannot be overstated since it has been declared as the venue for the capital of Indonesia. Hence, inflation prediction of the two cities will give valuable insights about the economic nature of the province for the country’s new capital. The data used in this study extended from January 2015 to September 2021. The data were divided into training and test data. The training data were used to model the time series equation using Holt winters and SARIMA models. Later, the models derived from training data were employed to produce forecasts. The forecasts were compared to the actual inflation data to determine the appropriate model for forecasting. Test data were from January 2015 to December 2020 and test data extended from January 2021 to September 2021. The result showed that Holt-Winters performed better than SARIMA in prediction inflation. The Root Mean Squared Error (RMSE) values are lower for Holt-Winters Exponential Smoothing for both cities. It also predicts better timing of cyclicality than SARIMA model.