Statistical Analysis on the Relationship Between Inflation and Household Consumption in Ondo State

Modupe Stella Omotayo-Tomo Nwokeocha Divine Chinelo

doi:10.56201/ijasmt.vol.12.no9.2026pg64.76

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Statistical Analysis on the Relationship Between Inflation and Household Consumption in Ondo State

Modupe Stella Omotayo-Tomo Nwokeocha Divine Chinelo

Abstract

This study investigates the statistical relationship between inflation and household consumption expenditure in Ondo State, Nigeria, using monthly time-series data spanning 28 years (January 1995 – December 2023). The research adopts a quantitative, correlational, and time-series design, employing the Auto-Regressive Distributed Lag bounds testing approach to cointegration and the Error Correction Model to examine both long-run and short-run dynamics. Real household consumption expenditure , constructed as the sum of major consumption categories adjusted by the Consumer Price Index , serves as the dependent variable, while inflation rate measured by the year-on-year percentage change in CPI is the primary independent variable. Diagnostic tests confirm that both variables are integrated of order one, I(1), satisfying the preconditions for ARDL modeling. The bounds test F-statistic (6.18) exceeds the upper critical bound (3.30), confirming the existence of a long- run cointegrating relationship. The estimated long-run coefficient reveals that a 1% increase in inflation leads to a ₦1.04k reduction in real household consumption, while the short-run effect is estimated at ₦0.41k. The error correction coefficient (λ = -0.28) indicates that approximately 28% of any deviation from equilibrium is corrected monthly, reflecting moderate adjustment speed. Granger causality test confirms unidirectional causality from inflation to household consumption (p = 0.015), reinforcing the predictive influence of inflation on spending behavior. Diagnostic checks including Jarque-Bera, Breusch-Godfrey, Breusch-Pagan, and CUSUM tests confirm model validity, residual normality, absence of autocorrelation and heteroskedasticity, and parameter stability over time. Forecasting for 2024–2028 using ARIMA models projects continued high inflation (peaking at 26%) and a corresponding decline in real consumption, signaling deteriorating household welfare. This study concludes that inflation significantly undermines consumption patterns in Ondo State. It recommends strengthening monetary policy, enhancing agricultural productivity, expanding social protection programs, and establishing a state-level price monitoring system. By applying advanced econometric techniques to a localized context, this research fills a critical gap in sub-national economic analysis and provides actionable insights for policymakers, economists, and development stakeholders.

Keywords

InflationHousehold ConsumptionCointegrationTime-Series & AnalysisIJASMT E- ISSN 2489-009X

References

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Statistical Analysis on the Relationship Between Inflation and Household Consumption in Ondo State

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