Examining the Influence of Basket of Commodities on Consumer Price Index using Stepwise Regression Analysis

This study adopts the concept of stepwise regression analysis with the aim of generating a model to examine the influence of basket of commodities on consumer price index (CPI) in both rural and urban areas in Nigeria. Data used is obtained from the CBN data bank. The result of analysis shows that X_2(housing, water, electricity, gas and other fuel), X_3(food and non alcoholic beverages), X_5 (alcoholic beverage, tobacco and kola) X_7(clothing and footwear), X_8(health), X_9(furnishing and household equipment maintenance), X_11(restaurant and hotels) and X_12(education) are the variables that mostly affect the urban area. Also, for the Rural area, it is observed that X_2(housing, water, electricity, gas and other fuel), X_3(food and non alcoholic beverages), X_5 (alcoholic beverage, tobacco and kola), X_7(clothing and footwear), X_8(health), X_9(furnishing and household equipment maintenance), X_4(miscellaneous goods and services), and X_6(transport) are the variables that contribute significantly. Therefore, the independent variables that have contributed significantly and common to both urban and rural areas are X_2, X_3, X_5, X_7, X_8, and X_9. However, it was noticed that, among the indicators in the basket of commodities, X_11(restaurant and hotels) and X_12(education) have effect only on the urban area while X_4(miscellaneous goods and services) and X_6(transport) were significant in the rural areas only. On this note, the choice of stepwise regression model has really paid off by distinguishing the cause and effect of basket of commodities on CPI for rural and urban areas.