Impact of Consumer Price Index and Exchange Rate on Economic Growth in Nigeria

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The main objective of this study is to investigate the impact of consumer price index and exchange rate on economic growth in Nigeria over the period 1992 to 2023. First, the study carried out unit root test to check the stationarity state of the variables using the ADF method and findings show that the variables have the combination of I(1) and I(0). Thereafter, the study conducted cointegration test using the bounds testing method and findings revealed that the variables have long run relationship. Subsequently, the Autoregressive Distributed Lag (ARDL) model was applied to estimate the parameters of the model and the results show that in the short run a 1% increase in the consumer price index will result in a 0.004395% significance decrease in economic growth at 5% level. Likewise the long run estimate revealed that a 1% increase in consumer price index results in a 0.085575% significance decrease in economic growth at 5% level. The results also showed that in the short run a 1% increase in the exchange rate will bring about a 0.023529% insignificance decrease in economic growth. In contrast, the long run estimate showed that a 1% increase in the exchange rate would result in a 1.174762% significance increase in economic growth. Additionally, the results also show that the interaction of consumer price index and interest rate has positive impact on economic growth. Based on the results, the study recommended that Nigerian government should address supply-side constraints by investing in infrastructure, boosting agricultural productivity, and enhancing the manufacturing sector which would help reduce the cost of production and stabilize prices, thereby curbing inflation from both demand and supply sides. Likewise, Nigerian government should prioritize stabilizing the exchange rate by diversifying its economy away from excessive reliance on oil export which is the main source of country’s revenue. The economy should be diversified to boost non-oil sectors such as agriculture, manufacturing, and technology which can enhance its export base, attract foreign direct investment, and build a resilient economy that is less susceptible to exchange rate fluctuations.