Modelling the Inflation Process in Nigeria

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2. Nigeria’s inflation experience
Nigeria has experienced all manner of inflationary episodes – from creeping to moderate and from high to galloping (see Table 1 and Figure 1). Average inflation during the period 1960–1972 was relatively low, the historical average rate being 5.01%. When assessed on an annual basis, however, rising prices became a cause for concern for the then military government when in 1969 the inflation rate hit double digits at 10.36%. Government’s concern seems to have been justified by the fact that Nigeria was experiencing double-digit inflation for the first time, in the face of a raging civil war whose end was not then in sight. In reaction, government imposed a general wage freeze for a period of one year. Apparently aware of possible opposition by labour unions, price control measures were introduced with the official promulgation of the Price Control Decree, early in 1970 (see Fashoyin, 1984, for comprehensive discussion of anti-inflation measures taken during this period). Inflationary pressures continued unabated, however, even with price controls.

Table 1: Inflation episodes in Nigeria
Period Average
1960–1972 5.01
1973–1985 17.96
1986–1995 31.30
1986–2002 13.34
Source: Computed by the authors
Pressures for salary increases led to the setting up of the Wages and Salaries Review Commission. The Commission eventually granted salary increases to all categories of public service employees, and similar adjustments were later made in the private sector. These awards, which came at a time when the dislocation of domestic production and marketing as a result of the civil war had not been fully repaired, generated a measure of excess demand in the economy. This is likely to have been responsible for the rise in the rate of inflation by 16.0% in 1971. Government’s immediate response was to lift import restrictions on several categories of goods. Excise duties on a number of goods were...
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