Understanding the Predictors of Consumer Sentiments: Lessons for Inflation Targeting Prospects in Nigeria

Abstract

Given the positive link between consumption and consumer confidence, the study attempted to ascertain factors that predict consumer confidence using quarterly data spanning 2009Q2 to 2012Q1. This is with the objective of providing a policy instrument that will fundamentally link consumer confidence and aggregate demand policies on one hand, and private consumption on the other hand; as well as serve as input into the effort by the Monetary Authorities to transit from intermediate to direct (inflation) targeting regime. A panel model was used for the estimation. We found that a non-volatile exchange rate appreciation and announced exchange rate depreciation, actual and income expectation are positively linked with consumer confidence; while actual and inflation expectation and unemployment have dampening effects. Model of inflation targeting in Nigeria will require that expectation be incorporated in a manner that will attach higher weight to food than durables and actual inflation.

Keywords: Nigeria, consumer sentiments, macroeconomic predictors, inflation targeting, panel model