EFFECTS OF BUDGET DEFICIT AND MONEY SUPPLY ON INFLATION IN NIGERIA

This study explores the relationship between budget deficit, money supply, exchange rate, interest rate, and inflation in Nigeria over the period from 1991 to 2023. The study adopted an ex-post facto approach with data obtained from the Central Bank of Nigeria to apply the Autoregressive Distributed Lag (ARDL) model. The research establishes that Nigerian inflation levels rose as the money supply increased thus showing a direct positive correlation between these economic variables. Exchange rate fluctuations lead to inflationary pressures in the economy because they create significant inflation effects. The budget deficit affects inflation only through its indirect influence which stems from its effect on money supply. The research reveals that interest rates generate inflationary effects which remain noticeable while being less influential compared to other factors. The data demonstrates why monetary authorities need to control both monetary base fluctuations and currency exchange rate fluctuations because such actions drive price increases. It is recommended that the Nigeria's government prioritize budget deficit reduction combined with currency stability mechanisms and monetary policy standards that should fight inflation together with promoting a stable economic framework. Security experts can use the study findings to develop strategic inflation controls for Nigeria's changing economic framework.