Munich Personal RePEc Archive

Petroleum Products Prices and Inflationary Dynamics in Nigeria.

Eregha, Bright and Mesagan, Ekundayo and Ayoola, Olawale (2015): Petroleum Products Prices and Inflationary Dynamics in Nigeria. Published in: The Empirical Econometrics and Quantitative Economics Letters , Vol. 4, No. 4 (December 2015): pp. 108-122.

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Abstract

It is well documented in the literature that there exists a positive relationship between oil price and inflation. In this study, we found that the price of Premium Motor Spirit (PMS) remained stable until the entry of the military into the administration of the country when the then military heads of state arbitrarily increased the prices of petroleum products. We also found that there exists high positive relationship between the prices of PMS and AGO and inflation in Nigeria. We therefore conclude that rises in petroleum products prices, especially PMS and AGO, significantly impact inflation in Nigeria. With this result, we recommend that government should shelve the idea of removing subsidy on PMS for now and should focus on deregulating the downstream sector to attract private investment with the aim of encouraging local refining of petroleum products instead of importing them. This will in turn reduce domestic prices for petroleum products and consequently inflation.

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