Assessment of Fuel Prices as Determinants of Inflation in Nigeria: A VECM Approach

Authors

Adekunle B. Alexander Dr., Federal University Oye-Ekiti, NigeriaFollow
Pelumi A. Abdulmalik, Federal University Oye-Ekiti, NigeriaFollow

Keywords

Petroleum price, Inflation, Nigeria, Pump price, Premium Motor Spirit (PMS), Petrol, Automotive Gas Oil (AGO), Vector Error Correction Model (VECM), Granger causality, Long-run relationship, Causality

Abstract

This study examines the effect of petroleum price on the direction of inflation in Nigeria - whether or not movement in prices of other goods and services responds to increase in pump price of premium motor spirit (PMS) otherwise known as petrol in Nigeria. The study employs the Vector Error Correction Model (VECM) and Granger causality tests to estimate the long-run relationship between petro! price and inflation as well as direction of causality for the 1991- 2021 period. Data for the study were sourced from the National Bureau of Statistics (NBS) and World Bank data indicators covering inflation, pump-price of premium motor spirit (PMS) and automotive gas oil (AGO) for the period under review. Findings of the study reveal that petroleum pump price has a Significant positive relationship with inflation in Nigeria. The study recommends that the Nigerian authorities should consider a gradual step-by-step petrol subsidy removal as a policy tool to stem the tide of inflation resulting from incessant increases in the pump price of petrol.

Author Bio

The authors are staff of Federal University Oye-Ekiti, Nigeria

Issue

1

Volume

47

First Page

3

Last Page

13

Recommended Citation

Alexander, Adekunle B. Dr. and Abdulmalik, Pelumi A. (2023) "Assessment of Fuel Prices as Determinants of Inflation in Nigeria: A VECM Approach," Bullion: Vol. 47: No. 1, Article 1.
Available at: https://dc.cbn.gov.ng/bullion/vol47/iss1/1