Petroleum Products Prices and Inflation in Nigeria(1990 – 2008)

Abstract

In this work which is titled “Petroleum Product Prices and Inflation in Nigeria”, effort was made to see if there was any relationship between petroleum products prices (PPP) and inflation (INF) in the country.

The study examines the impact of petroleum products prices increases on the level of inflation in the Nigerian economy.
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The scope of the study covers a period of eighteen years that is from 1990-2008, time series data on quarterly basis were employed for this work.

The methodology employed in this study includes; ADF test, VAR model (Vector Autoregression Model), impulse response function and variance decomposition.

A stationary test was carried out using the Augmented Dickey- Fuller (ADF) the variable were found to be stationary at difference order at 5% level of significance.

The VAR result indicates an increase in PPP leads to rise in the level of inflation. The impulse response function and the variance decomposition also indicated a positive relation existed between INF and PPP in Nigeria.

This suggested that subsidy removal from petroleum products lead to raise their prices and this also increase pressure on domestic inflation in Nigeria.
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Introduction

1.1 Background of Study

Inflation in Nigeria has been considered as a purely monetary phenomenon.

Hence inflation targeting has been through the manipulation of monetary variables such as exchange rate, money supply, price index, interest rate etc which are aimed at attaining price stability in the economy (CBN, 2004).

However, over the years, Nigeria has experienced unprecedented persistent and appreciable increase in the prices of petroleum products.

Petroleum products are major inputs to industrial production, they have a lot of domestic uses, in fact, and they are regarded as the life wire of the nation.

Consequently any unprecedented increase in their prices would therefore have a multiplier effect in the economy (Gbadomosi, et al., 2007).

The effect of petroleum products price increase to the growth and development of the Nigerian economy cannot be overemphasized.

This is because the price of petroleum products is critical to production cost and the welfare of the people in every economy.

Consequently, it has worsened the economic crises in the Nigerian economy. The outrageous price increases has made life unbearable for Nigerians as prices of goods and services have risen and thus causing hardship to most people in the country (Mba- Afolabi, 1999).
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References

Abah, I. E. (2000) “Impact of Monetary Policies on Inflation in Nigeria”. M. Sc Thesis.An unpublished M Sc Thesis. Department of Economic A.B.U Zaria.

Abayomi, T. O. and Adebayo, M. S. (2010) Determinants of interest rate in Nigeria: An error correction model. Journal of Economics and International Finance Vol. 2 (12), pp. 261-271.

Abedi, J.O. (1997), “Economics for College” Global Publishers, Lagos.

Adenikinju, A. (2000), Analysis of Energy Pricing Policy in Nigeria: An Application of a CGE Model. Research for development. NISER

Adeyeye E. O. and Faiyesi T. O.(1980), “Productivity Prices and Income Board and Anti- inflationary Policy in Nigeria”. Nigeria Economic Society, Proceedings of the 1980 Annual Conference (Ibadan).

Ajanah, A. (2002), “Major Basic in Petroleum Products Pricing Business Time”, June 23.