Macroeconomic determinants of food inflation in Nigeria

Abstract

This study investigates the macroeconomic determinants of food inflation in Nigeria covering the period from 2005Q1 to 2023Q4. The research specifically examines the effects of fuel subsidy, trade openness, exchange rate, and real gross domestic product (RGDP) on food inflation using the Autoregressive Distributed Lag (ARDL) model and the Toda–Yamamoto causality approach. The Augmented Dickey Fuller and Phillips–Perron unit root tests confirmed that all variables were integrated of order one, justifying the use of ARDL bounds testing. The long-run results reveal that trade openness has a negative and statistically significant impact on food inflation, implying that increased integration into international trade helps reduce domestic food prices. In contrast, fuel subsidy and real gross domestic product show no significant effect on food inflation, while exchange rate exerts a negative and
significant short-run influence. The causality analysis further establishes a bidirectional causal relationship between exchange rate and food inflation. The error correction term is negative and significant, confirming long-run stability. The study concludes that stable exchange-rate management, moderate trade liberalization, and gradual subsidy reforms supported by enhanced agricultural productivity are crucial for achieving sustained food price stability and ensuring food security in Nigeria.