Petroluem Products Prices And Inflation In Nigeria

ABSTRACTIn this work which is titled “Petroleum Product Prices and Inflation in Nigeria”, effortwas 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 productsprices increases on the level of inflation in the Nigerian economy. The scope of the studycovers a period of eighteen years that is from 1990-2008, time series data on quarterlybasis were employed for this work. The methodology employed in this study includes;ADF test, VAR model (Vector Autoregression Model), impulse response function andvariance 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 ofsignificance. The VAR result indicates an increase in PPP leads to rise in the level ofinflation. The impulse response function and the variance decomposition also indicated apositive relation existed between INF and PPP in Nigeria. This suggested that subsidyremoval from petroleum products lead to raise their prices and this also increase pressureon domestic inflation in Nigeria. In addition, because of the roles of smuggling, hoardingand other black market activities in raising the effective prices of these products seriouspenalties should be placed on these activities to avoid shortage of the petroleum productsin the country. The major findings from this study is that increase in the prices ofpetroleum products (PMS, AGO, and DPK) has a positive impact on the general pricelevel of goods and services in the Nigeria economy. Government should make sure thatour existing refineries are functioning at full capacity and also build new ones; by sodoing the existing refineries can meet Nigerians internal petroleum products needs andsome excess for export and strategic reserve of product demand. This can be madepossible when the nation refineries Turn-Around-Maintenance are consolidated withtransparency and accountability. In conclusion the CBN and policy makers in Nigeriashould also pay special attention to the supply management of petroleum products in thecountry.CHAPTER ONE

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