Investigating the impact of inflation on output growth in the nigeria economy (1970-2012)

This study examined the trend of inflation in Nigeria and the impact of inflation on output growth and inflation trend in Nigeria from 1970-2012. Findings revealed that inflation rate, interest rate, exchange rate, gross domestic product and money supply were on the high in 1995,1993,2010,2008,2010 respectively, while it recorded a low in 1971,1977,1981,1972,1970 respectively. The study used secondary data obtained from Central Bank of Nigeria (CBN) statistical bulletin 2012.The data were analyzed using Augumented Dickey-Fuller (ADF) and Phillips-Perron (PP). Findings revealed that INF (Inflation rate), EXR (Exchange rate), INT(Interest rate) variables were stationary while GRM(Growth rate of money supply), GRGDP(Growth rate of Gross Domestic Product), FDGDP(Ratio to fiscal deficits of Gross rate of Domestic Product) variables were not stationary. The Johansen-Juselius co-integration technique was employed in this study in accessing the co-integrating properties of the variables. The impact of each of the endogenous variables is investigated using the Vector Error Correction Model (VECM). The study revealed that INF (-0.1672), GRM (-0.3363) and EXR (-0.0177) have negative coefficient respectively. Findings also revealed that; the coefficient of other variables FDGDP, GRGDP and INT shows a positive relationship (0.0185, 0.07657, 0.068681 respectively) The study concluded that on the long-run, interest rate is the fastest variable through which inflation and output growth react in Nigeria. It was recommended that, the monetary authority needs to target the interest rate in other to reduce inflation growth and positively impact output growth in the economy.