Estimating the Determinants of Food Inflation in Nigeria

Abstract

This study investigates the determinants of food inflation in Nigeria, with a specific focus the impact of interest rates, exchange rates, and crude oil prices. Utilizing an Autoregressive Distributed Lag (ARDL) model, the research captures both immediate and lagged effects of these macroeconomic variables on the food inflation rate from 1991 to 2023. The results reveal that interest rates have a significant negative impact on food inflation, indicating that higher interest rates tend to reduce inflation by curbing consumer spending and investment. The exchange rate demonstrates a mixed impact: while a weaker Naira initially raises food prices, the long-term effect shows a significant reduction in inflation, suggesting economic adjustments over time. Crude oil price was also found to have a positive and significant impact on food inflation rate in Nigeria. These findings underscore the need for a comprehensive approach to macroeconomic policy, integrating interest rate adjustments, exchange rate stabilization, and measures to mitigate the impact of crude oil price fluctuations. The study provides empirical evidence to guide policymakers in formulating strategies to achieve price stability, economic growth, and sustainable development in Nigeria, emphasizing the critical role of coordinated policy interventions in managing food inflation.