Distributive Lag Effects of Inflation Dynamics on Petroleum Pump Price in Nigeria: Implications for Formalized Informalities?

Abstract

This study estimated the distributive lag effects of inflation dynamics on petroleum pump price in Nigeria, from 1986 to 2023 using as consumer price index (CPI), producer price index (PPI) and food price index, (FPI) as independent variables the indicators of inflation dynamics and petroleum pump price as a dependent variable. By sourced data from Central Bank of Nigeria and utilized Augmented Dickey-Fuller (ADF), correlation matrix, optimal lag length determination, ARDL bound test of cointegration, and Granger causality as methods of data analysis. Based on the analysis, the result revealed that the coefficient values of CPI, PPI and FPI are 0.021150, 0.051849, and 0.460294 respectively, but none being statistically significant at conventional levels (p-values > 0.05) and the R-squared value is 0.78117, while the adjusted R-squared values of 0.678632. There is a significant short-term effect of inflation dynamics on petroleum pump price, but significant long-term effect failed to exist. There is a unidirectional causality from PPP to PPI as revealed by the Granger causality test result. Based on this, it is concluded that inflation dynamics only have distributive lag effects on petroleum pump price in the short run, but not in the long-term. It is therefore recommended, among others, that interventions aimed at controlling food petroleum pump price by the government should focus on regulating the activities of the informal sector in the oil and gas sub-industry in order address the issue of formalized informalities.