ABSTRACT

Stability of the monetary and price level is the key mandate of the Central Bank of Nigeria

(CBN). Hence most of the forecasts of the Nigerian economy are based on the outlook for

inflation. Over the past five years, inflation rates have varied dramatically, reaching a peak of

* around 13 percent in 2012. Also, since December 2014, inflation rate in Nigeria has been on a

steady increase from 8.0 in December to 9.2 in June 2015. It is against this background that this

study investigated the determinants of inflation in Nigeria between 1981 and 2014. The study

uses secondary data obtained from Central Bank of Nigeria's Statistical Bulletin data base of

2014. The data were analyzed principally by multiple regression approach using Ordinary Least

Square method. The result reveals a significant relationship between Inflation rate; money

supply, exchange rate, interest rate and government expenditure simultaneously but not

individually. In the course of correcting this anomaly due to the problem of multicollinearity,

only two variables were used to determine inflation in Nigeria. We concluded that these

variables — interest rates and exchange rates — were the main determinants of inflation in Nigeria

during the period in review. Based on this conclusion, we recommended that the Central Bank of

Nigeria should embark on raising the cost of borrowing to Commercial banks, thereby curtailing

the capacity of Commercial banks to expand credit.