PUMP PRICES OF PETROLEUM PRODUCTS AND INFLATIONARY PRESSURE IN NIGERIA

Abstract

Inflation is a serious problem bedeviling the Nigerian economy today.  It is generally asserted that the high of energy, especially, largely responsible for the inflationary pressure being experienced in the country.  This study therefore examines the relationship between the retail pump prices of petroleum products and inflation in Nigeria.  Specifically, the study examines the impact of the pump prices of dual purpose kerosene (Kerosene), premium motor spirit (Petrol) and automotive gas oil (diesel) on inflation in Nigeria.  Annual time – series data covering the period 1981 to 2020 were used for the study.  The analytical techniques applied include the Phillips – Perron unit toot test, Johansen cointegration test, error correction mechanism (ECM), and Granger causality test.  The findings indicated that the prices of Kerosene and petrol strongly aggravate inflationary pressure while the price of diesel has weak positive impact on inflation in Nigeria.  The Granger causalitytest indicated a bidirectional causality between pump price of premium motor spirit and inflation while unidirectional causality from pump price of automotive gas oil to inflation was found. It is recommended, among other things, that the country’s refineries should be maintained to full capacity while licenses should be granted to interested entrepreneurs to operate new refineries in the country.  This will help to make petroleum products available and reduce the inflationary pressure associated with imported petroleum products.