An Assessment of the Relationship Between GDP and Inflation in Nigeria
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Background of the Study
The intricate relationship between GDP and inflation is a critical component of macroeconomic analysis, particularly in emerging economies such as Nigeria. Inflation affects the purchasing power of consumers and can distort economic growth measurements, while GDP provides a snapshot of overall economic performance (Umeh, 2023). In Nigeria, recurring bouts of inflation have often been observed alongside fluctuations in GDP, raising questions about their interdependence. The period under review reflects how supply-side constraints, demand pressures, and external shocks—such as changes in global oil prices—can simultaneously influence both variables (Ogbonna, 2024).
The dual challenge of managing inflation while sustaining GDP growth is further compounded by structural issues such as monetary policy inefficiencies, fiscal deficits, and exchange rate instability. Previous research indicates that while moderate inflation may coexist with robust economic growth, high inflation rates tend to erode economic stability and diminish investor confidence (Chukwu, 2025). Moreover, Nigeria’s diverse economic sectors respond differently to inflationary pressures. For example, the manufacturing and services sectors may experience inflation-induced cost-push effects, while the agricultural sector might be more sensitive to supply disruptions.
A nuanced understanding of the GDP-inflation nexus is essential for designing effective monetary and fiscal policies. This study aims to assess the strength and direction of the relationship between GDP and inflation in Nigeria, drawing on data from recent economic cycles. By employing advanced analytical techniques, the research will evaluate whether inflation acts as a catalyst for or a consequence of changes in GDP. Ultimately, the study intends to contribute to a more refined policy framework that balances growth objectives with price stability, thereby ensuring long-term economic resilience and improved living standards (Ibrahim, 2024).
Statement of the Problem
Nigeria’s economy is beset by episodes of high inflation which often coincide with periods of economic volatility. Despite attempts by policymakers to control price levels, persistent inflation continues to undermine the effectiveness of GDP growth as an indicator of economic well‐being (Eze, 2023). High inflation erodes consumer purchasing power and distorts investment decisions, complicating the interpretation of GDP data. Moreover, the feedback mechanism between GDP and inflation remains ambiguous, with debates over whether inflation dampens economic growth or if rapid growth triggers inflationary pressures (Okoro, 2024).
This ambiguity is compounded by external influences such as global commodity price shocks and domestic supply chain disruptions that challenge conventional economic models. The inability to clearly delineate the causality between GDP and inflation impedes the formulation of targeted monetary and fiscal policies. Furthermore, the heterogeneity in sectoral responses to inflation complicates efforts to implement uniform policy measures. Without a clear understanding of the interplay between GDP and inflation, policy responses may be misdirected, leading to suboptimal outcomes in terms of economic stability and growth (Adewale, 2025).
Thus, the problem this study addresses is twofold: first, to clarify the nature of the relationship between GDP and inflation in Nigeria; and second, to determine the extent to which inflation influences economic performance versus being a byproduct of economic expansion. Unraveling this complex dynamic is critical for developing policy strategies that effectively manage inflation while promoting sustainable GDP growth.
Objectives of the Study
• To determine the direction and strength of the relationship between GDP and inflation in Nigeria.
• To analyze the sector-specific impacts of inflation on economic growth.
• To provide policy recommendations that balance inflation control with growth promotion.
Research Questions
• What is the nature of the relationship between GDP and inflation in Nigeria?
• How do different economic sectors mediate the impact of inflation on GDP growth?
• Which policy measures can effectively stabilize inflation without stifling economic expansion?
Research Hypotheses
• H1: There is a statistically significant relationship between GDP fluctuations and inflation rates in Nigeria.
• H2: The impact of inflation on GDP growth varies significantly across different sectors.
• H3: Policy interventions aimed at controlling inflation have a positive effect on sustaining GDP growth.
Scope and Limitations of the Study
The study examines macroeconomic data from Nigeria over recent fiscal cycles, using national statistics and central bank reports. Limitations include data reliability issues, the influence of exogenous shocks, and challenges in establishing clear causality between GDP and inflation.
Definitions of Terms
• Inflation: The rate at which the general level of prices for goods and services is rising.
• GDP: Gross Domestic Product, an aggregate measure of economic activity.
• Monetary Policy: Government or central bank actions aimed at controlling the money supply and interest rates.
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