International Journal of Business and Social Science Vol. 3 No. 10 [Special Issue – May 2012] 183 Effect of Inflation on the Growth and Development of the Nigerian Economy (An Empirical Analysis) Aminu Umaru Lecturer Department Of Economics School of Management and Information Technology Modibbo Adama University of Technology Yola,Adamawa State, Nigeria. Anono Abdulrahman Zubairu Lecturer Department of Management Technology School Of Management and Information Technology Modibbo Adama University of Technology,Yola,Adamawa State,Nigeria. Abstract This paper investigates the impact of inflation on economic growth and development in Nigeria between 1970- 2010 through the application of Augmented Dickey-Fuller technique in testing the unit root property of the series and Granger causality test of causation between GDP and inflation. The results of unit root suggest that all the variables in the model are stationary and the results of Causality suggest that GDP causes inflation and not inflation causing GDP. The results also revealed that inflation possessed a positive impact on economic growth through encouraging productivity and output level and on evolution of total factor productivity. A good performance of an economy in terms of per capita growth may therefore be attributed to the rate of inflation in the country. A major policy implication of this result is that concerted effort should be made by policy makers to increase the level of output in Nigeria by improving productivity/supply in order to reduce the prices of goods and services (inflation) so as to boost the growth of the economy. Inflation can only be reduced to the barest minimum by increasing output level (GDP). Key words: Inflation, economic growth and development (GDP). 1. Introduction Maintenance of price stability continues to be overriding objective of monetary policy for most countries in the world today. The emphasis given to price stability in conduct of monetary policy is with a view to promoting sustainable growth and development as well as strengthening the purchasing power of the domestic currency amongst others. The Central Bank of Nigeria (CBN) employs the monetary targeting framework in the conduct of its monetary policy. This is based on the assumption of a stable and predictable relationship between money supply and inflation. Consequeuntly, the need to understand the relationship between inflation and economic growth of the Nigerian economy become imperative and the dynamics of inflation became central to the success of monetary policy to ensure the achievement of price stability. The effect of inflation (price instability) in the growth and development of the Nigerian economy cannot be over-emphasized. 2. Conceptual Framework The concept of inflation has been define as a persistence rise in the general price level of broad spectrum of goods and services in a country over a long period of time. Inflation has been intrinsically linked to money, as captured by the often heard maxim „„inflation is too much money chasing too few goods‟‟. Hamilton (2001) inflation has been widely described as an economic situation when the increase in money supply is „„faster‟‟ than the new production of goods and services in the same economy. Piana (2001) economists usually try to distinguish inflation from an economic phenomenon of a onetime increase in prices or when there are price increases in a narrow group of economic goods or services.