Asymmetric impacts of retail energy prices on inflation in Nigeria

Abstract

This study investigates the asymmetric impacts of retail energy prices on inflation in Nigeria, focusing on the period from Q1: 2010 to Q2: 2024. Utilizing secondary data sourced from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS) e-library, we examine how fluctuations in petroleum prices (PMS and AGO) influence both food and headline inflation. The analysis employs a nonlinear ARDL approach to capture the distinct effects of rising versus falling energy costs, revealing significant asymmetries in their impact on inflation indices. Our findings indicate that increases in fuel prices exert a pronounced inflationary pressure, particularly on food prices, while decreases lead to muted deflationary effects. The results emphasize the need for comprehensive policy interventions to mitigate fuel-driven cost-push inflation. Specifically, we suggest revisiting the framework for fuel subsidy removal to prevent abrupt price shocks that could burden consumers. Additionally, establishing an Energy Price Stabilization Fund (EPSF) could help stabilize food prices during periods of high energy costs by providing targeted support to the food market. Moreover, managing the exchange rate to minimize extreme fluctuations could further alleviate inflation pressures associated with import costs. Finally, strengthening inflation monitoring systems will enhance the government's ability to respond proactively to inflationary trends, ensuring timely interventions. These policy recommendations aim to create a more stable economic environment, reducing the inflationary impact of volatile retail energy prices and improving overall economic resilience in Nigeria.

Keywords: {'name': 'Inflation Dynamics; Retail Energy Prices; Exchange Rate Management; Asymmetric Prices'}

Authors & affiliations

Nenubari John Ikue
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

Abounoori, A. A., Nazarian, R., & Amiri, A. (2014). Oil price pass-through into domestic inflation: The case of Iran. International Journal of Energy Economics and Policy, 4(4), 662-669.

DOI: 10.4102/jef.v13i1.500

Akidi, V., Ikue, N. J. & Ewubare, D. B. (2024). Energy prices, exchange rate and food price inflation in Nigeria. A Presentation at the 65th Annual Conference of the Nigerian Economic Society with the theme: “Socio-Economic Development in Nigeria: Imperatives, Implications and Impacts” September 3rd – 5th, 2024.

DOI: 10.4236/me.2012.37107

DOI: 10.32479/ijeep.10764

DOI: 10.3390/en11113017

DOI: 10.33429/Cjas.11220.4/8

DOI: 10.1016/S0140-9883(03)00035-5

DOI: 10.1016/j.econmod.2015.10.012

Epor, S. O., Yua, H., & Utor, V. (2023). Exploring the asymmetric impacts of inflation on interest rate spread evidence from Nigeria with nonlinear ARDL and asymmetric causality. African banking and finance review journal, 7(7), 100-119.

DOI: 10.1007/s10644-021-09339-3

DOI: 10.1080/15228916.2021.1909401

DOI: 10.36096/brss.v6i1.678

Ikue, N. J., Ofuru, B., Onodjaefe, J. J., Onuosa, C. O., Ajaba, J. A., & Ntad, J. E. (2024). Asymmetric exchange rate pass-through and inflation rate in Nigeria. International Journal of Research in Business and Social Science (2147- 4478), 13(7).

DOI: 10.33429/Cjas.13122.5/9

DOI: 10.1080/00036846.2021.1976386

DOI: 10.1111/j.1477-9552.2004.tb00116.x

DOI: 10.1016/j.eneco.2023.106761

DOI: 10.1016/j.energy.2019.05.208

Nwafor, M. C. (2022). Interest rate spread, exchange rate and manufacturing output in Nigeria. GOUNI Journal of Management and Social Sciences, 10(1), 81-109.

Olofin, S., & Salisu, A. A. (2017). Modelling oil price-inflation nexus: The role of asymmetries and structural breaks. Centre for Econometric and Allied Research; University of Ibadan: Ibadan, Nigeria, 1-44.

DOI: 10.1016/j.jeca.2022.e00249

DOI: 10.19044/esipreprint.1.2023.p350

DOI: 10.1016/j.energy.2017.02.128

DOI: 10.1016/S2212-5671(15)00800-X

DOI: 10.1177/0958305X221077336

DOI: 10.1007/978-1-4899-8008-3_9

DOI: 10.32479/ijeep.8343

Sodipo, J. A., Ikue, N. J., Enegesi, L. B., Anthony, V., Oraemesi, C. N., Yisa, D. N., Aghede, B., Ejinkonye, J C., Nna, C. J., & Nwulia, A. C. (2024). Inflation dynamics and retail energy prices in Nigerian States. International Journal of Research in Business and Social Science (2147- 4478), 13(7).

DOI: 10.1016/j.eneco.2023.106920

Wale-Awe, O. I., & Sulaiman, L. A. (2020, September). Premium Motor Spirit (PMS) pricing and inflationary dynamics in Nigeria. In Forum Scientiae Oeconomia (Vol. 8, No. 3, pp. 49-60). https://doi.org/10.23762/FSO_VOL8_NO3_3