MODELING NIGERIA’S CONSUMER PRICE INDEX USING ARIMA MODEL

This paper fit a time series model to the consumer price index (CPI) in Nigeria’s Inflation rate between 1980 and 2010 and provided five years forecast for the expected CPI in Nigeria. The Box-Jenkins Autoregressive Integrated Moving Average (ARIMA) models was estimated and the best fitting ARIMA model was used to obtain the post-sample forecasts. It was discovered that the best fitted model is ARIMA (1, 2, 1), Normalized Bayesian Information Criteria (BIC) was 3.788, stationary R² = 0.767 and Maximum likelihood estimate of 45.911. The model was further validated by Ljung-Box test (Q = 19.105 and p>.01) with no significant autocorrelation between residuals at different lag times. Finally, the five years forecast was made, which showed an average increment of about 2.4% between 2011 and 2015 with the highest CPI being estimated as 279.90 in the 4^th quarter of the year 2015.

Keywords: ACF, ARIMA, Box and Jenkins, CBN, CPI, PACF