Benue State University, Makurdi

Petroleum Product Prices and Inflation in Nigeria (1990-2012)

Bobai, Francis Danjuma

Abstract

In this study 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. The scope of the study covers a period of twenty two years that is from 1990-2012, 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), granger causality test, 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 granger causality test revealed that bi-directional causality existed between PPP and INF, while the accumulated impulse response function and the variance decomposition also indicated a positive relationship existed between INF and PPP in Nigeria. The major findings from this study is that increase in the prices of petroleum products (PMS, AGO, and DPK) has a positive impact on the general price level of goods and services in the Nigeria economy. In conclusion the CBN and policy makers in Nigeria should also pay special attention to the supply management of petroleum products in the country.

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