PETROLUEM PRODUCTS PRICES AND INFLATION IN NIGERIA

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PETROLUEM PRODUCTS PRICES AND INFLATION IN NIGERIA

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. 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. In addition, because of the roles of smuggling, hoarding and other black market activities in raising the effective prices of these products serious penalties should be placed on these activities to avoid shortage of the petroleum products in the country. 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. Government should make sure that our existing refineries are functioning at full capacity and also build new ones; by so doing the existing refineries can meet Nigerians internal petroleum products needs and some excess for export and strategic reserve of product demand. This can be made possible when the nation refineries Turn-Around-Maintenance are consolidated with transparency and accountability. In conclusion the CBN and policy makers in Nigeria should also pay special attention to the supply management of petroleum products in the country. CHAPTER ONE

PETROLUEM PRODUCTS PRICES AND INFLATION IN NIGERIA

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