Relative Price Variability and Inflation: Evidence from Agricultural Sector in Nigeria

The main objective of this study is to establish quantitative relationships among relative price volatility of agricultural commodities and inflation in Nigeria. The data for the study were obtained from the publications of Central Bank of Nigeria, Federal Office of Statistics, Federal Ministry of Agriculture and Rural Development. The data covered the period 1970-2003. Our results show that the effect of inflation on relative price variability among agricultural commodities in Nigeria is non-neutral. Inflation has a significant positive impact on relative price variability both in the long-run and the short run. The findings suggest the implementation of policies which will buffer the agricultural sector from the effects of inflation in the short-run and in addition the crops sub-sector from the Long-run effect of inflation. Similarly, policies which reduce the rate of inflation will minimize relative price variability among agricultural commodities and consequently reduce inefficiency, distortions and misallocation of resources in agriculture, that might be caused by inflation. No data points in the study period showed negative inflation. As a result of this, the data could not provide evidence for the effect of deflation on relative price variability.