Petroleum Pump Price and Consumer Price Index in Nigeria: A case for or against Total Subsidy Removal – Panel Dynamic Analysis

Abstract

This study investigated the impact of petroleum pump price (PPP) on consumer price index (CPI) in Nigeria between 2000 and 2019, in order to have empirical support for or against total removal of subsidy on PPP. Three pump prices: prices of petrol, diesel and kerosene, were used to represent PPP. The economy was sub-divided into four: manufacturing; transportation; food; and domestic activities. Monthly Data were collected from both the NBS and CBN bulletins of different series. CPI was made the dependent variable and PPP, the independent variable. After the usual stationarity test, CPI was stationary at level while others were stationary at first difference. This informed the study to employ panel pooled mean/ARDL cointegration technique, which separated the impact into short and long run periods. Findings in the short run revealed that, the price of petrol had significant direct impact on consumer price in the short run. While these prices had no significant impact in the long run period, the price of kerosene indicated a significant inverse impact on consumer price in the short run but positive in the long-run. Results of cross-section short run coefficient revealed that prices of petrol and diesel had significant positive effect on manufacturing sector of the economy. The study, therefore suggests that, the government should remove subsidy totally on petrol and kerosene prices and reinvest the surplus into the economy, mostly in revamping the refineries. Also, Prices of alternative products to kerosene should remain stable to further reduce domestic use of kerosene in the economy.