Applied Economics and Finance Vol. 7, No. 4; July 2020 ISSN 2332-7294 E-ISSN 2332-7308 Published by Redfame Publishing URL: http://aef.redfame.com 112 Alternative Core Inflation Measures in Nigeria: An Examination Ladi R. Bala-Keffi 1 , Donald G. Mbaka 2 & Nuruddeen Usman 3 1 Deputy Director & Head Macroeconomic Policy and Analysis Division (MPAD), Monetary Policy Department, Central Bank of Nigeria, Nigeria 2 Economist, Monetary Policy Department, Central Bank of Nigeria, Nigeria 3 Assistant Economist, Monetary Policy Department, Central Bank of Nigeria, Nigeria Correspondence: Nuruddeen Usman, Monetary Policy Department, Central Bank of Nigeria, Nigeria. E-mail: nusman2@cbn.gov.ng The views expressed in this paper are those of the authors and do not represent the position of the Bank. Received: May 9, 2020 Accepted: June 8, 2020 Available online: June 24, 2020 doi:10.11114/aef.v7i4.4911 URL: https://doi.org/10.11114/aef.v7i4.4911 Abstract Core inflation measures have played an important role in the conduct of monetary policy at various central banks around the world. We examine core inflation in Nigeria using non-traditional measures and assess their persistence, to determine whether the Central Bank of Nigeria (CBN) should pay attention to one or other of these measures when assessing inflation developments. We find that the two new measures outperform the official core rate in tracking the persistence of headline inflation. The findings of this study will aid policy making within the Central bank of Nigeria (CBN) particularly where inflation targeting is adopted as the monetary policy framework. These core inflation measures provide a useful guide to central bankers both for monetary policy decisions and as a communication tool. They are a better predictor of future inflation depicting the more persistent influences on underlying inflation, which are of interest to policymakers (e.g. Clark, 2001; Blinder and Reis, 2005; Smith, 2004 and Dolmas &Wynne, 2008). JEL Code: C32, E31, E52 Keywords: core inflation, inflation persistence, monetary policy 1. Introduction The major objective of central banks is to preserve the value of money by maintaining a low rate of inflation, using monetary policy. Inflation is the central theme in monetary policymaking and policymakers need to determine, as a matter of necessity, an appropriate inflation rate conducive to economic growth and other macroeconomic objectives of government. Policymakers are often confronted with price changes that are both permanent and temporary. Various measurements have been adopted to obtain figures that reflect the change in prices of the representative consumer basket, across the World. Of these, the headline inflation rate (calculated from the change in the consumer price index) is widely published and broadly agreed as an appropriate target variable for monetary policy. In Nigeria, like most other monetary jurisdictions, the National Bureau of Statistics (NBS) provides a monthly estimate for this variable. Scholars have posited that including volatile price components to the representative consumer basket, may be problematic Nessén & Söderström, (2001). It is established in literature see Quah & Vahey(1995)) that substantial changes in commodity or food prices may lead to volatility in headline inflation rates. This random movement, for such an important variable, may pose challenges to policymakers with respect to obtaining accurate assessments of emerging developments in the inflation rate. More so, a high degree of volatility in the headline rate makes it challenging to differentiate between increases in generalized price and temporary shocks. Bernanke et al. (1999), Bryan and Cecchetti (1994), Mishkin (2007) propose that core inflation measures may be more useful for proper monetary policy management, because they omit highly volatile food and energy prices which are beyond the control of monetary authorities. The motivation behind this proposition also relies on the ability of core inflation measures to better predict future headline inflation. Core inflation rates have, thus, been advanced as a useful target to mitigate this policy challenge by obscuring the