Effects of Inflation, Income, Interest Rate and Government Expenditure on Household Consumption Expenditure in Nigeria

Abstract

The research investigates the influence of inflation, income, interest rate and government expenditure on Nigerian households' consumption spending over the span of 1986 and 2024. This study has four objectives which are to: determine the impact of inflation on household consumption; examine how income influences household consumption; understand the effect of interest rate on households' spending; and to identify the extent of which the Nigerian government spending influences household consumption. The research uses time series data. A variety of statistical techniques including Error correction model are implemented in the analyses. The findings show that an increase in income reduces household consumption in the short term whereas increased inflation has positive correlation with nominal household consumption spending. Furthermore, household consumption do not change remarkably with variation in interest rate whereas an increased government spending has a positive effect on the level of household's consumption. It is deduced that prices fluctuation and the level of government expenditure in the Nigeria state have influence on the consumers' expenditure decisions. Policy implications and recommendations of this research paper is that government should regulate prices in Nigeria state; control budget expenditure and improve government social programs.