Analysis Of The Determinations Of Inflation

Inflation has become a heading topic of discussion in the Nigeria economy and other countries of the world. The press as its effect penetrates more deeply into the nation’s life. It has become something of a platitude to say that sharp, continuous increase in price is among the serious economic problems of our time. The main purpose of the study is to highlight the determinants of inflation in Nigeria and to check the trend of inflation over time (i.e. 1980 -2010) and the measures to curb it. The methodology involves the use of ordinary least square econometric techniques using PC Give econometric package. These include T-test, to test the explanatory power of the estimates, the F-test to determine the significance of the entire regression plan and the second order tests, which includes test for auto-correlation, normality test, heteroscedasticity test and multicollinearity test. The objective of the study are to determine the possible determinants of inflation rate in the country and to provide economic policies and solutions to the issue of inflation in Nigeria. The data were largely the secondary data which are collected from CBN statistical bulletin. The data are collected for inflation rate and its determinants from 1980-201o. The dependent variables are money supply, government expenditure, real gross domestic product and real exchange rate. The regression result shows that real exchange rate, Government expenditure have a negative impact on inflation while money supply and real GDP have a positive impact on inflation respectively. This implies that an increase in real exchange rate, Government expenditure will reduce inflation while an increase in money supply and real GDP will increase inflation. The researcher recommends that monetary and fiscal policies should be used to control and direct economic activities of a country to avoid inflation.