The combined effects of retail energy prices, and exchange rates on inflation in Nigeria States

Nenubari John Ikue; John Sodipo; Charlse Oraemesi; Linus Enegesi; Daniel Yisa; Victor Anthony; Chinenye Nna

doi:10.36096/brss.v6i1.678

Authors

Nenubari John Ikue University of Port Harcourt
John A Sodipo Central Bank of Nigeria
Charles Nonso Oraemesi Central Bank of Nigeria
Linus B. Enegesi Central Bank of Nigeria https://orcid.org/0000-0002-2538-4958
Daniel Nma Yisa Central Bank of Nigeria https://orcid.org/0009-0005-4341-6895
Victor Anthony https://orcid.org/0009-0001-9324-8966
Chinenye Nna

DOI:

https://doi.org/10.36096/brss.v6i1.678

Keywords:

Nonlinear dynamics, Retail energy prices, Exchange rate fluctuations, Regional inflation disparities, Multiplicative Models

Abstract

This paper explores the nonlinear dynamics relationship between petroleum product prices and inflation in Nigeria. By focusing on the role of exchange rate fluctuations in amplifying the relationships, the paper employs a multiplicative interaction approach to address the nonlinear effects of petroleum prices on inflation. Utilizing data from 2016: Q1 to 2024: Q2 from the National Bureau of Statistics and the Central Bank of Nigeria, the study introduces interaction terms to capture how petroleum prices and exchange rates interact to influence inflation. The methodology includes static and dynamic panel estimators, with a focus on the within effect model to account for unobserved state-specific factors. Key findings reveal that AGO and PMS prices significantly drive both headline and food inflation, while DPK's impact varies, and GAS shows minimal effect. The study highlights those geographical factors—proximity to seaports and fuel depots—significantly influence inflationary pressures. States closer to these facilities experience lower inflation due to reduced distribution costs. This suggests that policies aimed at partial subsidization for states farther from key infrastructure could mitigate regional inflation disparities. The findings contribute to the understanding of inflation dynamics, emphasizing the need for targeted policy interventions tailored to regional economic conditions in Nigeria.

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