Relative price shocks and core inflation in Nigeria: implication of second-round effects for monetary policy Online publication date: Fri, 31-May-2024
by Jamilu Iliyasu; Aliyu Rafindadi Sanusi
Global Business and Economics Review (GBER), Vol. 30, No. 4, 2024
Abstract: This study employs a structural vector autoregression (SVAR) model to examine the second-round effects of shocks in food and energy prices on core inflation in Nigeria. First, the findings support the existence of second-round effects, showing that increases in energy and food prices have a positive and significant impact on core inflation. Second, the study finds that the response of core inflation to shocks in energy and food prices has increased since 2016. This study concludes that the sustained inflationary pressures in food and energy prices may have been transmitted to core inflation items in Nigeria. Furthermore, the evidence suggests that monetary tightening can help offset these second-round effects of food and energy price inflation. Therefore, one policy implication of this finding is that mitigating the second-round effects will require the Central Bank of Nigeria to aggressively respond to energy and food price shocks, though this may slow output growth.
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