Inflation Dynamics and Food Prices in Nigeria

Abstract

In Nigeria, inflation dynamics and food prices have been a major concern for policymakers and the public alike. In recent years, the country has experienced a surge in food prices, which has contributed to the rise in inflation. This study employs the linear autoregressive distributive lag model to investigate inflation dynamics and food prices in Nigeria, with a specific focus on identifying the fundamental factors driving the increase in food prices. Using annual data from 1990 to 2021, the study examines the relationships between oil price, exchange rate, money supply, and government expenditure, and their varying long- and short-term effects on inflation and food prices in Nigeria. The Bound test cointegration results confirm that the variables are cointegrated, highlighting the presence of a long-term relationship among them. Our findings reveal that higher oil prices exert a short-term large positive influence on food prices, but their long-term impact is negligible. Conversely, increased money supply significantly impacts food prices in both the short and long term. Additionally, an increased exchange rate inversely impacts food prices in the long-term. These results highlight crucial policy implications for curbing food price increases, reducing the welfare effects while, maintaining lower prices and ensuring its sustainability.