Oil Price Pass–Through into Inflation: empirical evidence from Nigeria

Abstract

The objective of the paper is to empirically investigate the oil price pass-through into inflation in Nigeria in order to suggest appropriate domestic policies necessary to control inflation for the policy makers. The study also attempts to answer questions like: What is the causal links between oil price and inflation in Nigeria? Is oil price highly correlated with inflation? What does the result of an estimation of a Phillips curve tell us about the pass-through for oil in Nigeria. The methodology adopted by the paper is a standard pass-through equation in the form of an autoregressive distributed lag (ARDL) model and quarterly series from 1990 - 2010 were used for the estimation. The estimation results indicate that changes in oil price have had significant effects on inflation. Other findings are that inflation has been influenced by exchange rate changes and changes in broad money supply and maximum lending rate.