Abstract
The Nigerian economy depends to a reasonable extent on the sale of crude oil for its expenditure. The country also depends on importation for a high level of its consumption. Given these events, this paper set out to investigate the causality effect of energy price fluctuations on inflation in Nigeria. This was done using time series data from 1985 to 2018. Oil price, gas price and exchange rate were the independent variables and inflation was the dependent variable. The result of the pairwise granger causality test shows that inflation is not caused by oil price or gas price fluctuations. The paper proposes that fiscal and monetary policy should be engaged to understand the causes of inflation in Nigeria.
Highlights
INTRODUCTION TheNigerian economy is highly dependent on its sale of crude oil for its revenue (Agbaeze et al 2015)
Electricity price is determined by the gas price in Nigeria; gas prices are calculated in American dollars and are affected by exchange rate fluctuations
This means that individuals and firms that utilize electricity as a factor input in their production process would be observant of the gas price and the exchange rate of Nigerian naira to the American dollar movements
Summary
Nigerian economy is highly dependent on its sale of crude oil for its revenue (Agbaeze et al 2015). The Nigerian government engages in crude oil price forecast, which it uses as it’s benchmark for budgeting purposes. The movement in energy prices has the potential to affect the price of oil and gas derivatives such as premium motor spirit (PMS), AGO and DPK. These fluctuations have the potential to affect the price level in the economy. The consumption of crude oil derivatives that facilitate the transportation sector could experience higher transportation cost because of oil price fluctuation This increase in cost could affect the final price of the product or service being transported. The paper will conclude with an interpretation of the results and a policy prescription based on the results
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