Macroeconomic determinants of inflation in nigeria: an autoregressive distributed lag bounds testing technique

Over the years, the actual growth rates of inflation in Nigeria have constantly been far above the Central Bank of Nigeria monetary policy targeted growth rates despite its focus on inflation targeting. This paper therefore examined macroeconomic determinants of inflation in Nigeria using annual time series data covering the period of 1981 to 2017. The study employed two inflation models based on the traditional “demand-pull” and “cost-push” theories respectively and applied autoregressive distributed lag (ARDL) technique based on the outcome of Augmented Dickey-Fuller, Phillips-Perron and breakpoint unit root tests which revealed that the variables are integrated of order 1 and 0. The ARDL bounds test result provided evidence of a long run relationship among the variables in the presence of structural break in the series. This necessitated the estimation of ARDL short-run and long-run results. The results of both models revealed that gross domestic product, money supply, general government expenditure, imports of goods and services, exchange rate, wages, interest rate, pump price of premium motor spirit and unemployment rate are significant determinants of inflation in Nigeria. The study concludes that both demand-pull and cost-push factors are determinants of inflation in Nigeria and recommends that the government should prioritize the productive sectors of the economy and also provide social infrastructure that would encourage private investment so as to provide jobs for the teeming unemployed which will bridge the output gap and reduce food imports; set interest rate at a level that would ensure sufficient supply of money for investment and productive activities.