Empirical Analysis of Oil price changes on Inflation in Nigeria

Abstract

This study empirically analyzed the impact of oil price changes on inflation in Nigeria using monthly time series data for the period of January 1991 to April 2019. The study employed Autoregressive Distributed Lag (ARDL) Model after the result of the unit root tests revealed mixture of integrated order of the stationarity level of the variables. The ARDL results showed that in the long run, oil price exerts positive influence on the rate of inflation in Nigeria over the time which means that as oil price increases, inflation rate does increase. Also the exchange rate as part of the control variables and the lag value of the dependent variable exert positive influences on the target variable. In the short run, oil price also shows a positive relationship with the inflation rate which is in accordance with the long run result. It can therefore be concluded that, oil price changes remain one of the important inflation’s influencing variables. Hence, it is recommended that curbing the increasing erratic inflation rate as a cankerworm that eats the fabric of prosperity of an economy could be done by paying good attention to the swinging nature of oil price as well as exchange rate and taking proactive actions in manipulating monetary policy tools to cushion any negative effect as a result of their outcomes in the economy.