Abstract:

The trend of inflation in Nigeria has been startling and there was relatively little knowledge of how volatility in stock market prices could influence future inflation in Nigeria. This objective of this study is to determine how inflation trends could be explained by stock market booms and burst. To achieve the stated objective, the study applies the Hodrick-Prescott Filter and Contemporaneous Correlation test on data for Nigeria from 1985-2017. The study finds that there is a countercyclical relationship between stock prices and inflation rate. This implies that inflation tends to rise when stock prices are falling and inflation falls when stock prices are rising. The study hence, recommends that policies that extend the stock market cycles should be adopted as it has been proven to reduce the inflation rate significantly.