The Evolution of Drivers of Food Inflation in Nigeria: A Time-Varying Analysis

Abstract

This study examines the time-varying drivers of food inflation in Nigeria over the period 2010 to 2024, using the time-varying Granger causality (TVGC) framework of Shi et al. (2020) within a Lag-Augmented VAR model. The empirical analysis incorporates food inflation, exchange rate, money supply, and an insecurity index as the core variables of interest. The results show that exchange rate depreciation and money supply growth are the dominant monetary drivers of food inflation, with their predictive influence strengthening markedly during the post-COVID-19 period and following the 2023 foreign exchange reforms. Insecurity exerts a time-varying structural influence on food prices, most prominently from 2019 onward, coinciding with intensified conflict in major food-producing regions. Robustness checks using a Time-Varying Parameter Structural VAR with Stochastic Volatility (TVP-SVAR-SV) confirm the exchange rate and monetary channels as persistent positive drivers of food inflation, while showing that insecurity operates mainly through macroeconomic volatility amplification rather than as a direct linear price shock. The findings call for a coordinated policy response combining exchange rate stability, monetary discipline, and structural reforms in agriculture and security to address Nigeria’s persistent food inflation challenge.