Institutional Determinants of Domestic Price Dynamics: Evidence from Food Inflation in Nigeria
Year: 2026
Type: article
Abstract: Food inflation is recognized as a major macroeconomic issue in Nigeria, significantly affecting household welfare, poverty reduction, and overall economic stability. Thus, provides valuable insights into how institutional factors, such as the CBN's monetary autonomy and regulatory quality, alongside monetary and fiscal policy measures, affect food inflation in Nigeria between 1997 and 2023. This is motivated by Nigeria's persistent and complex inflation issues, despite numerous monetary and fiscal policy efforts to ensure economic growth and stability. The datasets were gathered from the Central Bank of Nigeria (CBN) Statistical Bulletin, the National Bureau of Statistics, the World Bank, and the Chinn-Ito index, and analyzed using descriptive statistics, pre-estimation tests (unit root and cointegration tests), and least-squares estimation. The results showed that CBN’s monetary autonomy and regulatory quality contributed positively to food inflation in Nigeria during the study period. The contemporaneous positive effect of regulatory quality on food inflation is significant at the 5% level, indicating that a percentage increase in regulatory quality is associated with a 16.59% increase in food inflation during the study period. This finding highlights the ineffectiveness of institutional quality in reducing food inflation in Nigeria. The results further showed that the monetary policy rate has a positive effect on food inflation. Although this finding is not significant at the 5% level, it highlights the monetary policy rate's ineffectiveness as a tool for mitigating rising food prices. The effect of broad money supply on food inflation is mixed. While contemporaneous broad money supply negatively affects food inflation, its one-period lag has a positive and significant effect. The estimated parameter revealed that food inflation increases by 1.08% following a percentage increase in the one-period lag of the broad money supply. Additionally, the results showed that total government expenditure contributed positively to food inflation. This finding is not surprising, as increased government spending raises households' purchasing power, boosting aggregate demand for food and, in turn, raising food prices. The error correction coefficient (-0.6868) is negative and significant at the 5% level, indicating that distortions from the long run are corrected at a speed of 68.68% each year. Thus, we recommend that policymakers reinforce the CBN's autonomy in practice and strengthen the bank's inflation-targeting regime by explicitly defining its inflation goals to improve the precision of inflation forecasts and stabilize food prices.
Authors: Johnbosco Ozigbu, Christopher Ezekwe, Lucky Okofu
Language: English
Domain: Social Sciences
SDG: Zero hunger
Open Access status: diamond
OpenAlex ID: W7213759517