Joseph, V. I., Peter, E. S., & Etim, N. E. (2026). The Effect of Inflation on Economic Growth in Nigeria: A Time Series Analysis (2010–2020). International Journal of Research, 13(2), 39–54. https://doi.org/10.26643/ijr/2026/32
Victor
Ime Joseph1 Peter, Eziekiel S.2 & Nsisong Effiong
Etim3
1,2,3Department of Economics,
University of Uyo, Uyo, Nigeria
Abstract
This study investigates
the effect of inflation on economic growth in Nigeria using time series data
spanning from 2010 to 2020. By examining the inflation rate alongside GDP
growth rates, the research adopts a descriptive and comparative approach supported
by graphical visualizations. The study further incorporates comparative
insights from South Africa and Ghana to highlight regional patterns and
deviations. Findings reveal that high inflation rates in Nigeria, especially
post-2015, have adversely impacted GDP growth, supporting existing economic
theories. The study concludes with actionable recommendations for
inflation-targeting strategies and macroeconomic stabilization.
Keywords: Inflation,
Economic Growth, Nigeria, Time Series, South Africa, Ghana, GDP
1.0
INTRODUCTION
Inflation
continues to be one of the most pressing macroeconomic concerns in Nigeria and
other developing economies. As a persistent rise in the general price level,
inflation not only erodes the purchasing power of households but also distorts
resource allocation, reduces investment incentives, and impairs economic
stability (Obadan, 2020; Olayemi, 2016). In the Nigerian context, inflation has
exhibited considerable volatility over the past decade, reflecting deep-seated
structural rigidities, over-reliance on oil exports, foreign exchange market
distortions, and weak monetary policy transmission mechanisms (Adeniran, Yusuf
& Adeyemi, 2017; CBN, 2021).
Understanding
the impact of inflation on economic growth is particularly critical in Nigeria,
where growth performance has been fragile and inconsistent. The country
experienced robust GDP growth in the early 2010s—averaging 6.2% between 2010
and 2014—before suffering two recessions within five years: first in 2016 and
again in 2020 due to the COVID-19 pandemic. These downturns were characterized
by rising inflation, dwindling foreign reserves, and fiscal imbalances (NBS,
2021; Oduh & Ezeaku, 2021). During these years, inflation averaged over
13%, reaching as high as 16.5% in 2017 and 13.2% in 2020, which adversely
impacted household consumption, private sector confidence, and macroeconomic
planning.
Theoretically,
the relationship between inflation and economic growth is ambiguous. While the
Structuralist School, led by scholars such as Lewis (1954), attributes
inflation in developing countries to supply-side bottlenecks and institutional
inefficiencies, the Monetarist School emphasizes the role of money supply and
fiscal discipline (Ajakaiye & Fakiyesi, 2009). In Nigeria, both schools
find relevance given the multiplicity of inflationary drivers—ranging from poor
agricultural output and infrastructural deficits to excessive deficit financing
and exchange rate pass-through (Ogunmuyiwa & Ekone, 2010).
A
cross-country perspective further enriches this discussion. For example, Ghana,
having adopted a structured inflation-targeting framework under the supervision
of the International Monetary Fund (IMF), managed to stabilize its inflation
rate around 10% during the same period while recording an average GDP growth
rate of 4.9% (IMF, 2020; Bank of Ghana, 2021). Similarly, South Africa
maintained a relatively low and stable inflation environment—averaging 5.3%
between 2010 and 2020—thanks to the credibility of its central bank and
institutionalized monetary policy rules (SARB, 2021). Nigeria, by contrast,
recorded higher inflation and lower average growth, suggesting inefficiencies
in macroeconomic coordination and policy execution (CBN, 2021; NBS, 2021).
This
study investigates the effect of inflation on economic growth in Nigeria from
2010 to 2020 using descriptive time series analysis. Specifically, it seeks to:
i) Analyze the trend and
structure of inflation and GDP growth in Nigeria over the period.
ii) Examine the relationship
between inflation and economic growth using descriptive tools and visual
analytics.
iii) Compare Nigeria’s
macroeconomic performance with Ghana and South Africa to draw lessons for
policy reform.
The
significance of this study lies in its contribution to the ongoing debate about
the inflation-growth nexus in developing economies, particularly in Nigeria.
Despite various policy reforms and interventions, Nigeria has continued to
struggle with double-digit inflation and unsatisfactory economic performance.
Identifying how inflation impacts economic growth can inform more targeted and
coherent monetary and fiscal policies. Additionally, the comparative analysis
with Ghana and South Africa can help Nigerian policymakers adopt contextually
effective strategies that have worked elsewhere on the continent.
Moreover,
this research provides empirical evidence to support or refute conventional
economic theories in the Nigerian context, particularly those related to
macroeconomic stability and growth performance. By focusing on a period marked
by both economic expansion and contraction, the study offers insights into how
inflation dynamics evolve under varying macroeconomic conditions.
2.0 Literature Review
2.1 Conceptual
Clarification
2.1.1 Inflation
Inflation
refers to a sustained increase in the general price level of goods and services
in an economy over a period of time, resulting in the decline of the purchasing
power of money. According to the Central Bank of Nigeria (CBN, 2020), inflation
is the rate at which the general level of prices for goods and services is
rising, and subsequently, how purchasing power is falling. The National Bureau
of Statistics (NBS, 2021) further defines inflation as an upward movement in
the average level of prices, typically measured monthly or yearly through the
Consumer Price Index (CPI).
From
a scholarly perspective, Akinlo (2012) identifies inflation in Nigeria as being
predominantly driven by cost-push factors, including exchange rate
depreciation, rising import costs, insecurity, food supply shocks, and
infrastructural constraints. Fapetu and Oloyede (2014) emphasize the role of
structural deficiencies—such as poor transportation systems and energy supply
shortages—in perpetuating inflation in Nigeria.
Inflation may take
several forms depending on its causes, magnitude, and speed:
i) Demand-pull inflation:
Arises when aggregate demand exceeds aggregate supply. This is common in
economies experiencing expansionary fiscal or monetary policies (Umaru &
Zubairu, 2012).
ii) Cost-push inflation:
Occurs due to rising production costs, such as wages and raw materials, which
producers pass on to consumers (Ajakaiye & Fakiyesi, 2009).
iii) Structural inflation:
Rooted in deep-seated structural weaknesses like underdeveloped markets,
inefficient institutions, and infrastructural bottlenecks (Obadan, 2020).
Inflation is typically
measured using price indices, primarily the Consumer Price Index (CPI) and
Producer Price Index (PPI). In Nigeria, the CPI is the standard metric used by
the NBS to gauge inflation levels. Nigeria’s inflationary trend, particularly
post-2015, has been characterized by double-digit inflation largely due to food
price volatility, border closures, fuel price adjustments, and naira
depreciation (NBS, 2021; Ezeaku & Asogwa, 2017). These have significant
implications for real incomes, poverty levels, and overall macroeconomic
stability.
2.1.2 Economic Growth
Economic
growth is broadly defined as an increase in the economic output of a country
over time, usually measured by the change in Gross Domestic Product (GDP). The
World Bank (2021) describes economic growth as the annual percentage increase
in a nation’s output of goods and services adjusted for inflation. Growth is
regarded as a critical macroeconomic goal because it reflects improvements in
living standards, employment generation, and income levels.
Iyoha and Oriakhi (2002)
define economic growth as a sustained expansion of the productive capacity of
an economy, indicating an increase in the value of goods and services produced
over a specific period. Jhingan (2016) elaborates that growth occurs when an
economy is able to increase its productive capacity through capital
accumulation, technological progress, labor force expansion, and institutional
reforms.
There
are different types or dimensions of economic growth, including:
i) Nominal vs. Real Growth:
Nominal growth considers output increase at current prices, while real
growth adjusts for inflation to reflect the true expansion of output.
ii) Short-term vs. Long-term
Growth: Short-term growth is usually cyclical and influenced by demand-side
factors, while long-term growth depends on structural changes and productivity
improvements (Solow, 1956).
iii) Inclusive Growth: This
refers to growth that is distributed fairly across society and creates
opportunities for all, particularly the poor and vulnerable (Ali & Son,
2007).
In Nigeria, economic growth has been inconsistent due to several factors
including oil price fluctuations, insecurity, fiscal mismanagement, and
infrastructural decay (Adeniran et al., 2017; Oduh & Ezeaku, 2021). Between
2010 and 2014, Nigeria recorded high growth rates averaging over 6%, but this
momentum was disrupted by the 2016 recession and the 2020 pandemic-induced
downturn. These fluctuations suggest a fragile growth model heavily reliant on
external sectors and susceptible to inflationary shocks.
2.2 Theoretical
Framework
This
study draws on two core theoretical traditions—the Monetarist and Structuralist
schools—supplemented by Barro’s Endogenous Growth Model. Nigerian scholars who
have applied or critiqued these theories in the national context are cited,
illuminating strengths and limitations in the country’s macroeconomic
environment.
2.2.1 Monetarist Theory
Originating
with Milton Friedman (1968) and the Quantity Theory of Money, the monetarist
view holds that “inflation is always and everywhere a monetary
phenomenon”—driven by excessive growth in money supply relative to output. This
implies that controlling money supply via monetary policy (e.g., interest
rates, reserve requirements) is key to controlling inflation.
Monetarist
prescriptions have struggled in Nigeria due to weak transmission mechanisms,
fiscal dominance, and supply-side shocks. Ekong & Effiong (2020) argue that
without strong coordination between fiscal and monetary authorities,
suppressing money supply alone may fail to stabilize prices, because inflation
in Nigeria also reflects fiscal expansion and structural bottlenecks.
2.2.2 Structuralist
Theory
Structuralist
theory, as formalized by scholars like Myrdal and Straeilian (1987), posits
that inflation in developing economies stems from supply-side
rigidities—including inelastic food supply, institutional inefficiencies,
foreign exchange scarcity, and protective trade measures—rather than purely
monetary excess. Structuralist theory’s limitation lies in its sometimes too
broad attribution of inflation to non-monetary causes, without quantifying the
interaction between supply constraints and monetary policy. Moreover, as Oduh
and Ezeaku (2021) note, it may underplay critical roles of demand factors and
inflation expectations. Also, Nigeria’s evolving complex macroeconomic
structure means policy coordination across fiscal, monetary, and supply
interventions is necessary—suggesting structuralism alone offers incomplete
policy guidance.
2.2.3 Endogenous Growth
Perspective (Barro, 1995)
Barro’s
endogenous growth model theorizes that inflation impedes long-term economic
growth by affecting capital accumulation, distorting information, and
reallocating resources from productive to speculative activities (Barro, 1995).
Building on this framework, Nigerian empirical studies have observed that high
inflation periods—particularly post-2015 and during the 2020 crisis—correlate
with declining investment, heightened uncertainty, and weak GDP performance
(Oduh & Ezeaku, 2021; Obadan, 2020). These dynamics are consistent with
endogenous growth theory’s prediction that inflation reduces productive
investment and growth sustainability.
2.2.4 Comparative
Evaluation & Synthesis
|
Theory |
Nigerian
Application |
Strengths
in Nigeria Context |
Limitations
in Nigeria |
|
Monetarist |
ARDL
studies show significant but incomplete money-inflation link (Danlami et al.) |
Offers
clear policy tools (money supply control, interest rate management) |
Ignores
non-monetary drivers; limited transmission; fiscal dominance may undermine
control |
|
Structuralist |
Cited
by scholars like Fapetu & Oloyede, Obadan, Oduh & Ezeaku |
Highlights
supply‑side bottlenecks and institutional issues driving inflation |
May
underestimate expectations and monetary interactions; lacks precise
quantification |
|
Endogenous
Growth |
Nigerian
analysis links inflation to investment decline and recurrence of recessions |
Frames
inflation-growth nexus in long‑run policy terms |
Needs
complementary micro-level data to support model specifics in Nigeria |
2.2.3 EMPIRICAL REVIEW
This
section focuses on empirical reviews which critically examine existing studies
by Nigerian scholars on the relationship between inflation and economic growth.
These works offer data-driven insights into how inflation dynamics have
influenced Nigeria’s macroeconomic performance over time, reflecting both
theoretical and policy-oriented perspectives. By analyzing various time frames,
methodological approaches, and econometric models, these empirical studies
provide a comprehensive understanding of the extent to which inflation — either
as a structural or monetary phenomenon — affects economic growth.
Umaru
and Zubairu (2012) carried out a study on the effect of inflation on economic
growth in Nigeria between 1980 and 2010 using the OLS regression method. The
study found that inflation had a significant negative impact on growth and
recommended inflation targeting and supply-side reforms. In a similar study,
Asuquo (2012) examined the period 1973–2010 using multiple regression analysis.
His results showed that inflation and poor monetary control mechanisms
undermine growth performance, and he recommended a stronger institutional
framework for monetary policy implementation.
Anochiwa
and Maduka (2012) conducted a study covering 1970–2012 using unit root tests,
Johansen cointegration, and Granger causality. They found a negative but
statistically insignificant effect of inflation on economic growth, and advised
that inflation be maintained at a single-digit threshold to minimize its
distortionary effect.
Edeme
and Ifelunini (2015) in a related study analyzed the inflation-growth
relationship between 1980 and 2013 using the 2SLS technique. Their study
revealed a non-linear threshold of 8% inflation beyond which economic growth
becomes negatively affected, and they proposed an optimal inflation targeting
regime. Similarly, Muritala (2015) used OLS estimation on data from 1981–2006
and discovered that inflation had a statistically significant negative effect
on GDP, while investment had a growth-enhancing role. He recommended combining
inflation stabilization policies with capital formation strategies.
In
a related investigation, Ayunku and Etale (2015) assessed the effect of
inflation on growth from 1980 to 2010 using the Johansen cointegration and
error correction model. They found a long-run negative relationship between
inflation and economic growth, recommending better control of money supply.
Following
this, Ekong & Bassey (2019) conducted a study over the 1980–2017 period
using ARDL, focusing on energy-induced inflation and growth. Their results
showed that inflation driven by rising energy costs significantly hampers GDP
growth, and they recommended reforms in energy infrastructure. Similarly, Ekong
and Effiong (2020) analyzed macroeconomic data from 1985 to 2019 using ARDL and
ECM techniques. Their findings revealed that both monetary and fiscal factors
contribute significantly to inflation in Nigeria and advised for synergy in
their application to stabilize the economy.
Onwubuariri,
et al (2021) carried out a study covering 1980–2019 using the ARDL bounds test
and error correction model. They identified both short- and long-run negative
effects of inflation and interest rate spread on economic growth, and suggested
comprehensive macroeconomic reforms. Similarly, Farouk, et al (2021) explored
the period 1986–2018 with the ARDL framework. The study concluded that
inflation depresses growth significantly across time horizons, and recommended
a sound inflation management policy to foster macroeconomic stability. In a
related effort, El-Rasheed and Usman (2022) used asymmetric ARDL for the period
1980–2017 to investigate the non-linear effects of inflation and found
asymmetric responses of growth to inflationary shocks. They emphasized
accounting for these asymmetries in monetary policy design.
Likewise,
Asuzu & Anyanwu (2023) adopted Toda-Yamamoto VAR on data from 2006Q1 to
2022Q2 and found unidirectional causality from money supply growth to inflation
and from inflation to reduced GDP. They recommended curbing inflation via money
supply contraction and fiscal responsibility. Also, et al (2023) used the ARDL
method on 1986–2020 data and found a 31% long-run and 21.9% short-run decline
in GDP growth due to inflation. They called for more aggressive
inflation-targeting policies and reduction of interest rate spreads.
Most
recently, Iriabije, Ekong and Orebiyi (2024) applied threshold autoregressive
models to analyze the 1980–2021 data. They discovered that policy effectiveness
varies across inflation thresholds, recommending that monetary authorities
operate within specific policy bands to ensure price stability.
In
the same year, Nwosu, Inam & Orebiyi (2024) conducted an ARDL and Granger
causality analysis on data from 1980–2023 and concluded that fiscal deficits
are a major long-run driver of inflation, calling for greater fiscal prudence
and agricultural support to stabilize prices.
Lastly, Olurin et al.
(2024) used OLS to assess the impact of inflation and government expenditure
between 1989 and 2021. The study found that both variables significantly
influence growth, and advised an expansionary fiscal policy directed at social
infrastructure with strict inflation control.
While
many of these studies converge on the conclusion that high and persistent
inflation exerts a detrimental impact on output expansion, others highlight
context-specific thresholds beyond which inflation becomes harmful, thereby
underscoring the nonlinear and heterogeneous nature of this relationship.
Collectively, these studies provide nuanced evidence to support targeted policy
reforms, especially in the areas of monetary policy management, structural
adjustment, and institutional development.
3.0 Methodology
3.1 Research Design
This
study adopts a descriptive time-series analytical approach to examine the
effect of inflation on economic growth in Nigeria over the period 2010–2020.
Rather than applying advanced econometric modeling techniques such as ARDL or
VECM, the study relies on a trend-based, comparative, and graphical analysis to
explore the co-movement and dynamic interaction between inflation and GDP
growth rates during the period under review.
The
choice of a descriptive analytical approach is premised on the objective of
capturing observable macroeconomic patterns, conducting cross-country
comparisons, and providing visual interpretations that are accessible to both
academic and policy audiences. This approach also enables the identification of
structural turning points, inflation-growth asymmetries, and temporal shocks
(e.g., oil price collapse of 2014–2016, and COVID-19 in 2020) without the risk
of over-parameterization often associated with small-sample econometric
techniques.
Furthermore, descriptive
analysis aligns with the exploratory nature of the research, particularly given
the need to contextualize Nigeria's inflation-growth trends in relation to
other African economies such as Ghana and South Africa. By focusing on real
macroeconomic outcomes and trends, the analysis maintains empirical integrity
while enhancing interpretability and policy relevance.
The
study employs secondary data drawn from reliable, publicly accessible sources,
including:
i.
Central
Bank of Nigeria (CBN) Statistical Bulletin
ii.
National
Bureau of Statistics (NBS)
iii.
World
Development Indicators (WDI), World Bank
These sources are widely
used in macroeconomic research and provide consistent time-series data for
inflation and GDP indicators.
3.2
Time
Frame and Variables
i.
Period
of Study: 2010–2020. This period captures a decade-long macroeconomic
experience characterized by major policy shifts, oil price volatility, currency
depreciation, structural reforms, and inflationary pressures, making it a
strategically significant timeframe for evaluating inflation-growth dynamics.
ii.
Dependent
Variable: Economic Growth, measured as the annual growth rate of Gross Domestic
Product (GDP) at constant market prices.
iii.
Independent
Variable: Inflation Rate, proxied by the Consumer Price Index (CPI) on an
annual basis.
4.0 Descriptive and
Comparative Data Analysis
To explore the
inflation–growth dynamics in Nigeria, the table below presents annual inflation
and real GDP growth rates for the period 2010–2020:
Table 1: Inflation and
real GDP growth rate in Nigeria
|
Year |
Inflation Rate (CPI %) |
Real GDP Growth Rate (%) |
|
2010 |
13.7 |
8.0 |
|
2011 |
10.8 |
6.4 |
|
2012 |
12.0 |
4.3 |
|
2013 |
8.5 |
5.4 |
|
2014 |
7.8 |
6.3 |
|
2015 |
9.0 |
2.7 |
|
2016 |
15.7 |
–1.6 |
|
2017 |
16.5 |
0.8 |
|
2018 |
12.1 |
1.9 |
|
2019 |
11.4 |
2.3 |
|
2020 |
13.2 |
–1.8 |
The empirical and
descriptive analysis conducted in this study reveals a largely negative
relationship between inflation and economic growth in Nigeria during the period
2010–2020 as seen in table 1. Notably,
the years of elevated inflation (2015–2017, and again in 2020) corresponded
with some of the lowest growth outcomes, including periods of outright economic
contraction.
of Nigeria’s
macroeconomic environment.
4.1 Analysis of Trends
Fig. 1: Trend Analysis
of Inflation and Economic Growth in Nigeria between 2010-2010.
From Fig.1; between 2010–2014:
Inflation decreased from 13.7 % to 7.8 %, while GDP growth remained robust,
ranging from 8.0 % down to 6.3 %. The concurrence of moderate inflation and
strong growth suggests macroeconomic stability during this period.
·
2015–2017: Following the 2014 oil
price collapse and currency depreciation, inflation rose markedly (9.0 % to
16.5 %), while growth plunged into recession by 2016 (−1.6 %) and remained
subdued (0.8 %) in 2017. This illustrates a clear negative correlation between
rising inflation and economic contraction.
·
2018–2019: Inflation moderated to
~11.4–12.1 %, with small positive growth (1.9–2.3 %), signaling modest recovery
but limited resilience amid persistent inflationary shocks.
·
2020: Economic contraction
resumed at −1.8 %, with inflation rising to 13.2 %—largely attributable to
COVID‑19 disruptions, food supply shocks, and exchange rate volatility
Fig. 2 above illustrate
Adjusted GDP Growth Trends in Nigeria (2010–2020), segmented into four distinct
periods:
1.
2010–2014:
Stable Growth and Declining Inflation (≈55.4%)
This period reflects strong and consistent economic performance, with GDP
growth averaging over 6% annually. During these years, inflation trended
downward from 13.7% to 7.8% (CBN, 2020), indicating relative macroeconomic
stability. Key drivers included high oil prices, expansion in services, and
post-recession recovery.
2.
2015–2017:
Rising Inflation and Economic Recession (≈20.5%)
Economic performance deteriorated sharply, with growth plunging from 2.7% in
2015 to -1.6% in 2016 (NBS, 2017). Inflation rose drastically, peaking at 16.5%
in 2017. The downturn was largely due to falling oil revenues, exchange rate
volatility, and policy uncertainties (Ajakaiye and Fakiyesi, 2019).
3.
2018–2019:
Modest Recovery (≈17.9%)
Nigeria’s economy
witnessed slow recovery, with GDP growth rising to 1.9% and 2.3%, respectively,
in 2018 and 2019. However, inflation remained in double digits, averaging
around 11.8% (CBN, 2020). Structural rigidities and insecurity, especially in
the North, limited the recovery potential (Eboh, 2020).
4.
2020:
Pandemic-Induced Contraction (≈6.2%)
The economy contracted
by -1.8% due to the COVID-19 pandemic’s global and domestic impacts. Oil demand
declined, business closures rose, and inflation spiked amid food supply
disruptions (World Bank, 2021).
The pie chart analysis
illustrates Nigeria’s economic fragility, with over 25% of the decade
characterized by recession or weak recovery. Compared to South Africa, Nigeria
had stronger headline growth but was more vulnerable to global shocks and
domestic constraints.
Note: Since GDP growth
in 2020 was negative (-1.8%) see Table 1, all values were shifted by +2 units
for visualization purposes. This adjustment enables the pie chart to display
all segments proportionally.
Fig. 3: Inflation Vs GDP
growth in Nigeria (2010-2020).
4.2 Discussion
Nigeria’s
2010–2020 experience is consistent with a nonlinear inflation–growth nexus. Low
to moderate inflation (≈<10%) can accompany growth, but very high inflation
correlates with stagnation. Doguwa (2012) estimated Nigeria’s inflation
threshold around 10–12%.
Our
data reinforces that growth weakened sharply when inflation exceeded that
range. The 2016–17 peak inflation (~18%) coincided with Nigeria’s worst growth.
This echoes Eze & Nweke (2017) who found inflation had a negative or
negligible effect on Nigeria’s GDP over 1980–2015 once co-integration was
accounted. The “contemporary discussion” reveals that many African countries
faced rising inflation after 2015. For instance, Ghana’s inflation jump in
2015–16 (from ~15% to ~17%) was due to liberalizing FX and fuel prices, yet
growth held above 5%. In Nigeria, the naira devaluation in 2016 similarly drove
inflation up, but growth plunged into negative. Thus, Nigeria’s inflation was
more damaging, possibly due to fiscal imbalances and policy lags.
Furthermore,
these findings align with the monetarist theory which argues that
inflation—particularly when unanchored and not driven by demand-side
fundamentals—distorts price signals, increases uncertainty, and erodes consumer
and investor confidence (Friedman, 1968; Akinlo, 2012). Nigeria's inflation
during this period was largely cost-push in nature, driven by exchange rate
depreciation, high food prices, and structural bottlenecks (CBN, 2020; NBS,
2021). This supports the structuralist viewpoint, which attributes inflation in
developing countries more to supply-side constraints and institutional
fragility than excessive demand (Lewis, 1954; Todaro & Smith, 2009).
This
relationship is corroborated by several empirical studies. For example,
Onwubuariri, Oladeji, and Bank-Ola (2021) found both long- and short-run
negative effects of inflation on economic growth in Nigeria using ARDL-ECM
analysis. Similarly, Ekpo (2019) reported that inflation above single digits
impedes investment and distorts resource allocation in the Nigerian economy.
Akinbobola (2012) also identified that persistent inflation significantly
undermines the stability comparative analysis with South Africa revealed that
countries with better inflation-targeting regimes and more effective monetary
institutions tend to experience more stable growth (SARB, 2020). While Nigeria
grew faster than South Africa in headline terms, the quality and sustainability
of that growth were inferior due to persistent macroeconomic instability, weak
institutions, and over-reliance on oil revenues (Iyoha & Oriakhi, 2013).
Other studies include Effiong et al. (2025), Orebiyi et al. (2025), Okon et al.
(2021), and Atan and Effiong (2021).
In
essence, the discussion reinforces that macroeconomic stability, particularly
price stability, is a prerequisite for sustained growth. Inflation not only
reduces real returns on investment but also reallocates capital from productive
sectors to speculative ones (Barro, 1995).
Overall,
our descriptive analysis agrees with threshold theory: inflation up to about
10% had limited adverse impact, but beyond ~12–15% growth suffered
significantly. This suggests inflation control is key for Nigeria’s growth.
Notably, during 2020–21, Nigeria’s inflation (13–18%) remained higher than
Ghana’s (~10%) despite similar pandemic shocks, helping explain Nigeria’s
weaker recovery.
5.1 Conclusion
This study
has shown that inflation remains a critical constraint to economic growth in
Nigeria. The decade under review (2010–2020) was marked by episodes of
inflation-induced macroeconomic stress, which coincided with economic
stagnation and recession. The Nigerian experience confirms that high inflation,
especially when driven by structural and cost-push factors, has a deleterious
effect on GDP growth.
While
temporary increases in price levels may be tolerated in pursuit of growth,
sustained high inflation undermines the very foundation of productive
investment, reduces consumer purchasing power, and distorts budgetary planning
both in the private and public sectors. The findings underscore the importance
of inflation control as a tool for sustainable development.
5.2 Recommendations
Based on the findings
and supported literature, the following policy recommendations are proffered:
i.
Strengthen
Inflation-Targeting Frameworks: Nigeria must adopt a more transparent and credible
inflation-targeting regime, like that of South Africa. This requires enhanced
independence and capacity of the Central Bank of Nigeria (CBN), along with
better coordination with fiscal authorities (Ajakaiye & Fakiyesi, 2019).
ii.
Diversify
the Economy to Reduce Supply-Side Shocks: Structural inflation in Nigeria
is often caused by disruptions in agriculture and import-dependence.
Investments in local production, infrastructure, and logistics can reduce
cost-push inflation (Obadan, 2020).
iii.
Promote
Exchange Rate Stability:
Given that currency depreciation significantly fuels inflation in Nigeria,
maintaining a stable and market-reflective exchange rate would be vital for
inflation control (Ogun & Egwaikhide, 2015).
iv.
Fiscal
Discipline and Reduction of Deficit Financing: Monetary policy efforts are often
undermined by fiscal indiscipline. Curtailing fiscal deficits and reducing
reliance on central bank financing will help anchor inflation expectations
(Ekpo, 2019).
v.
Institutional
Reforms:
Sound institutions are critical for implementing and sustaining effective
macroeconomic policies. Reforms in public finance management, data
transparency, and corruption control would enhance the credibility of inflation
management policies (Iyoha & Oriakhi, 2013).
References
Adeniranetb al (2017).
The impact of exchange rate fluctuation on the Nigerian economic growth: An
empirical investigation. International Journal of Academic Research in
Business and Social Sciences, 7(10), 42–54.
Ajakaiye, D., and
Fakiyesi, T. (2019). Macroeconomic policy management in Nigeria. Ibadan:
Nigerian Economic Society.
Ajakaiye, O., &
Fakiyesi, T. (2009). Global financial crisis discussion series: Nigeria case
study. ODI Working Paper No. 8.
Akinbobola, T. O.
(2012). The dynamics of money supply, exchange rate and inflation in Nigeria. Journal
of Applied Finance and Banking, 2(4), 117–141.
Akinlo, A. E. (2012).
Determinants of inflation in Nigeria: A structuralist perspective. Journal
of Economics and Sustainable Development, 3(11), 19–27.
Akinlo, A. E. (2012).
Effect of inflation on economic growth in Nigeria. Journal of Economics and
Sustainable Development, 3(10), 93–101.
Ali, I., & Son, H.
H. (2007). Defining and measuring inclusive growth: Application to the
Philippines. Asian Development Bank Working Paper, No. 98.
Atan, J. A., & Effiong, U. E.
(2021). Fiscal Policy and Inflation in Nigeria: An Insight into the Critical
Limit Hypothesis. Quest Journal of
Research in Business and Management (JRBM), 9(5), 66 – 73.
Bank of Ghana. (2021). Monetary
policy reports (2010–2020). Accra: Bank of Ghana.
Barro, R. J. (1995).
Inflation and economic growth. Bank of England Quarterly Bulletin, 35(2),
166–176.
Central Bank of Nigeria.
(2020). Statistical bulletin. Abuja: Research Department.
Central Bank of Nigeria.
(2021). Annual report and statistical bulletin. Abuja: CBN.
Danlami, I. A., Helmi,
M., & Hassan, S. (2020). Money supply and inflation in Nigeria: The myth of
monetarist theory of inflation. Journal of Economics and Sustainability,
2(2), 1–13.
Effiong, U. E., Okijie, S. R.,
& Udofia, L. E. (2025). The interaction of oil price shocks, exchange rate
volatility and inflation in Nigeria. SSR Journal of Arts, Humanities and
Social Sciences, 2(7), 103-115.
Ekong, C. N., &
Effiong, U. E. (2020). Monetary-fiscal coordination in inflation targeting in
Nigeria. American Journal of Theoretical and Applied Business, 6(3),
37–46.
Ekpo, A. H. (2019).
Inflation targeting and growth in Nigeria: Reassessing the link. Nigerian
Journal of Economic Policy, 6(2), 15–31.
Ezeaku, H. C., &
Asogwa, F. O. (2017). Exchange rate volatility and inflation dynamics in
Nigeria. International Journal of Economics and Financial Issues, 7(3),
340–346.
Fapetu, O., &
Oloyede, J. A. (2014). Inflation and unemployment trade-off: A critique of the
Phillips curve in Nigeria. International Journal of Humanities and Social
Science Invention, 3(4), 20–30.
IMF. (2020). Ghana:
Sixth review under the extended credit facility. IMF Country Report No.
20/83.
Iyoha, M. A., &
Oriakhi, D. E. (2002). Explaining African economic growth performance: The case
of Nigeria. African Economic Research Consortium Paper, No. 42.
Iyoha, M. A., &
Oriakhi, D. E. (2013). Explaining African economic growth performance: The case
of Nigeria. African Economic Research Consortium (AERC).
Jhingan, M. L. (2016). The
economics of development and planning (41st ed.). Delhi: Vrinda
Publications.
Lewis, W. A. (1954).
Economic development with unlimited supplies of labour. The Manchester
School, 22(2), 139–191.
National Bureau of
Statistics. (2021). Annual abstract of statistics. Abuja: NBS.
National Bureau of
Statistics. (2021). Consumer price index report and GDP report (Q4 2020).
Abuja: NBS.
Obadan, M. I. (2020).
Inflation and the Nigerian economy: The search for a lasting solution. CBN
Bullion, 44(2), 1–18.
Obadan, M. I. (2020).
Inflation in Nigeria: Policies and challenges. Journal of Monetary and
Economic Integration, 10(1), 1–22.
Oduh, M. O., &
Ezeaku, H. C. (2021). Inflation and economic growth in Nigeria: A disaggregated
sectoral analysis. Nigerian Journal of Economic and Social Studies, 63(1),
55–72.
Ogun, T. P., &
Egwaikhide, F. O. (2015). Exchange rate management and inflation in Nigeria. Journal
of Developing Areas, 49(4), 239–256.
Ogunmuyiwa, M. S., &
Ekone, A. F. (2010). Money supply–economic growth nexus in Nigeria. Journal
of Social Sciences, 22(3), 199–204.
Okon, J. I., Joshua, N.
J., Arinze, N. P., & Effiong, U. E. (2021). Is the Inflation Problem in
Nigeria Unsolvable? International Journal of All Research
Education and Scientific Methods (IJARESM), 9(11), 995 – 1008.
Olayemi, S. O. (2016).
Inflation and economic growth in Nigeria: A threshold analysis. Journal of
Economics and Development Studies, 4(2), 136–145.
Onwubuariri, N. E.,
Oladeji, S. I., & Bank-Ola, F. O. (2021). Inflation, interest rate spread
and economic growth in Nigeria. Economic Review Journal, 7(1),
77–92.
Orebiyi, P., Ukpe, U., Effiong, U.,
& Udoffia, D. (2025). Monetary policy toolkit and inflation in Nigeria:
Empirical evidence in a period of exchange rate depreciation. ISA Journal of
Business, Economics and Management (ISAJBEM), 2(4), 420-428.
Oyebanji, O., &
Anyanwu, O. S. (2024). Revalidation of the impact of growth in money supply on
inflation in Nigeria. Applied Journal of Economics, Management and Social
Sciences, 2(1), 45–58.
South African Reserve
Bank. (2020). Quarterly bulletin. Pretoria: SARB.
South African Reserve
Bank. (2021). Annual economic review. Pretoria: SARB.
Straeilian, G., &
Myrdal, A. (1987). Structuralist theory of inflation. Journal of Economic
Perspectives, 1(2), 55–71.
Todaro, M. P., &
Smith, S. C. (2009). Economic development (10th ed.). Boston: Pearson
Addison Wesley.
Umaru, A., &
Zubairu, A. A. (2012). Effect of inflation on the growth and development of the
Nigerian economy (An empirical analysis). International Journal of Business
and Social Science, 3(10), 183–191.
World Bank. (2021). World
development indicators. Washington, D.C.: World Bank Publications.
