IMPACT OF PETROLEUM PRODUCTS PRICE CHANGES ON PRICES OF FOOD ITEMS IN THE NIGERIAN ECONOMY

Abstract

There seems to be disequilibrium between food items and petroleum price changes in Nigeria. Every petroleum price change is followed by a rise in the prices of food items and increased poverty. This study therefore examines the impact of petroleum product price changes on the prices of food items in the Nigerian economy. Annual time series data from 1991 to 2021 are employed and the study adopt ARDL approach to determine the long-run and short-run relationship between the price of premium motor spirits and the price of food items in Nigeria. However, as it is reported by the unit root test there is a mixture of 1(0) and 1(1) order of cointegration. With these results, it is more suitable to apply the ARDL approach. The results show that the price of premium motor spirit has a positive and significant impact on food items during the short run but in the long run, the prices of premium motor spirits have a positive and insignificant impact on the food items in Nigeria. The results of the Toda and Yamamoto (1995) causality tests show that there is a unidirectional causality running from the price of food items to the price of premium motor spirit and from the exchange rate to the price of food items. Therefore, the government should implement policies that encourage agricultural productivity which has great potential of boosting food supply so as to reduce the price of food items across the country. This way, timely increases in petroleum prices would generate more revenue without inflationary trends in food items.