Explainable Artificial Intelligence for Inflation Forecasting with SHAP, Random Forest, and LSTM: An Application to Algeria

Nouara Boudouh (), Bilal Mokhtari () and Sihem Kerdoudi ()
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Nouara Boudouh: University of M hamed Khider, Departement of Computer Science
Bilal Mokhtari: University of Mohamed Khider, Departement of Computer Science
Sihem Kerdoudi: University of Mohamed Khider, Department of Financial Sciences and Accounting

A chapter in Proceedings of the International Conference on Artificial Intelligence Applications in Business Administration in MENA Region (ICAIABA 2026), 2026, pp 67-77 from Springer

Abstract: Abstract Accurate inflation forecasting is crucial for effective policymaking, yet inflation dynamics often lack transparency. This study applies Explainable Artificial Intelligence (XAI) to analyze inflation in Algeria by combining SHapley Additive exPlanations (SHAP) with Random Forest (RF) and Long Short-Term Memory (LSTM) models. While LSTM better captures extreme inflation episodes and RF provides smoother forecasts, the main contribution lies in explaining model predictions. SHAP results identify food inflation as the dominant driver, followed by lagged producer inflation and the GDP deflator, revealing strong nonlinear and temporal effects, whereas energy inflation plays a limited role. In addition, the analysis highlights how machine-learning models can complement traditional econometric approaches by capturing complex interactions and regime-dependent behaviors that are difficult to observe with linear frameworks. Overall, integrating ML models with XAI enhances transparency, supports informed policy decisions, and provides robust, interpretable evidence to better understand and manage inflationary pressures in Algeria’s evolving macroeconomic environment context effectively.

Keywords: Inflation forecasting; Random Forest; Explainable AI; Economic indicators; LSTM Time-series analysis (search for similar items in EconPapers)
Date: 2026
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DOI: 10.2991/978-94-6239-711-8_8

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