Impact of exchange rate fluctuations on inflation in Nigeria

This study examines the impact of exchange rate on inflation in Nigeria. The study covered the period of deregulated economy from 1980- 2015.We analyzed the trend of inflation and exchange rate in the last 35 years by evaluating the relationship between government expenditure, exchange rate and inflation. Cointegration Analysis, Ordinary Least Squre Regression and Granger Causality Test are used to analyse the data in addition, we adopted the Augmented Dickey- Fuller to carry out the unit root test. Our result shows that the individual variables are integrated order one in the unit root test. The result of the coingegration shows no cointegration of the three variables. In other word the variable are not related in the long run. The Ordinary Least Square analysis shows that Exchange Rate is a major determinant of inflation in Nigeria. Similarly the result of Granger causality test reveal A unidirectional relationship flowing from exchange rate to inflation. It is therefore recommended that government should encourage import substitution strategy to improve the value of Naira while will in turn solve the problem of inflation in Ngeria