Forecasting Nigerian Inflation: A SARIMAX and Granger Causality Analysis of Exchange Rate and Crude Oil Price Impacts

Inflation significantly affects Nigeria's purchasing power and economic stability, thus necessitating targeted policy responses. This study assesses the Nigeria's inflation dynamics from 2008 to April 2024, with a focus on the effects of exchange rate volatility and crude oil prices on the inflation dynamics especially across Consumer Price Index (CPI) categories. Using monthly data from the National Bureau of Statistics (NBS) and the Central Bank of Nigeria (CBN), time series decomposition, Granger causality tests, linear regression, and SARIMA/SARIMAX forecasting were employed in the analysis. Results indicate that the exchange rate significantly drives inflation, while crude oil prices have a negligible direct effect. Food CPI was most sensitive to inflationary pressures, whereas communication CPI was least affected. Forecasts suggest a potential decline in inflation in 2025, indicating possible economic stabilization. Recommendations vary from stabilizing the exchange rate, intervening in the foodstuff market, diversifying the economy, investing in the communications sector, and holding policies to bring down inflation and gain sustainable growth.