ASCERTAINING THE RELATIONSHIP BETWEEN SUBSIDY REMOVAL ON PETROLEUM PRODUCTS AND INFLATIONARY TRENDS IN NIGERIA
Keywords:
Subsidy, Petroleum products, Petrol, Diesel, Kerosene, Inflation IntroductionAbstract
Prior to the 29th of May, 2023, the Nigerian economy was trudging on with a no clear sense
of direction., but this state of malaise was shattered by the inaugural broadcast of President
Bola Ahmed Tinubu, where he announced that the era of fuel subsidy was over .Confusion,
and uncertainty were let loose. The price of petrol and other petroleum products skyrocketed
overnight with its attendant negative impact on transport fares and other facets of the
economy. While most Nigerians are groaning in pains over this development, some
technocrats are of the opinion that; money that would have been set aside as subsidy is
better utilized in the provision of basic infrastructures. With the aid of monthly data for the
period, August 2022 to April 2024; this study investigated the impact of subsidy removal on
the prices of petroleum products and the level of inflation that it may have triggered.
Outcome of the study using a Descriptive statistics as well as a VEC model indicate the
existence of relationships. The percentage increase in the price of petrol (PMS) has a
positive long run relationship with inflation (INF). Percentage increase in the price of
Diesel (AGO), may have a positive long relationship with Inflation (INF), but the evidence
is not statistically significant. A percentage increase in the price of Kerosene (DPK); does
not have a statistically long run relationship with inflation (INFL). Changes in petrol and
Diesel prices have significant short run effects on inflation. Petrol and Diesel prices were
seen to granger cause inflation, indicating a directional relationship. Lastly, the post
subsidy removal era in fuel prices brought with it a higher level of inflation in Nigeria. In
line with the above research findings, the study recommends that Nigeria should strive to
become self-sufficient and reliant in the refining of petroleum products and energy
production. Since our existing refineries have become comatose; there is the need to licence,
build and to operate new modular refineries in each of the oil producing states in Nigeria
as the demand for petroleum products have by far outstripped the supply. That is the way to
go!