THE EFFECT OF FUEL SUBSIDY REMOVAL ON INFLATION IN NIGERIA
Member Ahemen , Kelvin Songo and Mpase Gbande
Volume 13 Issue 2
Abstract
This study examines the effect of fuel subsidy removal on inflation in Nigeria using monthly time series data from January 2020 to December 2024. Anchored on the Keynesian cost-push inflation theory, the Autoregressive Distributed Lag model was employed to assess both short-term and long-term relationships between the variables and the pairwise granger causality test was applied to determine the direction of causality among the key variables. The study findings revealed a unidirectional causal relationship from Premium Motor Spirit prices to inflation, affirming cost-push inflation dynamics. The study finds that PMS prices significantly and positively affect inflation in both the short and long run. The study concludes that fuel subsidy removal contributes to inflationary pressures in Nigeria. It recommends policies such as fuel price regulation, investments in alternative energy and efficient government spending to mitigate inflationary shocks in Nigeria. Keyword: Fuel Subsidy Removal, Inflation, ARDL, Nigeria
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