The Relationship between Inflation and Economic Growth in Nigeria: A Conceptual Approach

Abstract

The rate of inflation over the last three decades in Nigeria has significantly increased thereby affecting the macroeconomic growth and international competitive drive of the growing economy. The magnitude of this inflationary trends may be largely explained by the rapid growth of money supply motivated by the expansionary fiscal policies of the public sector, in addition to exchange rate fluctuation and poor diversification of the economy. After numerous attempt by successive administrations to regulate this economic problem using both monetary and fiscal policies, efforts seems to be abysmal. As a result, this paper is designed to explore the inflationary trend in Nigeria with the view to determining it impact on economic growth. The study adopted a descriptive method and further utilised charts to show the inflationary trend and GDP growth in order to provide better understanding on how inflation rates in Nigeria affects the desired level of economic growth. This is necessary because identifying the possible relationship between inflation and economic growth may expedite the process of realising the feasible policy options to be adopted towards achieving sound macroeconomic growth in Nigeria. This study therefore concludes that the current inflationary trend in Nigeria is negatively affecting the realisation of sustainable growth and development. This implies that one of the necessary requirement for attaining the desired growth level in Nigeria is to control the excessive increase in inflation rate. As a recommendation, there is need for the public sector to design a suitable framework that will encourage local producers to engage in innovative economic activities. This will creates a platform for creativity and manufacturing of commodities with international competitive advantage. The multiplier effects of this approach will undoubtedly increase the export volume of the growing economy, raise productivity level and competitive drives, reduce the exchange rate fluctuation, increase employment creations, raise income growth and economic welfare, and largely the fiscal prudence and macroeconomic growth.