THE IMPACT OF PETROLEUM PRODUCTS PRICE HIKE AND THRESHOLD EFFECT OF INFLATION ON THE NIGERIAN ECONOMY
Abere Benjamin Olusola and Rashidat Elamah
Volume 6 Issue 1
Abstract
This study empirically investigates the impact of petroleum products price hike on the Nigerian economy, with specific focus on identifying the critical inflation threshold beyond which macroeconomic distortions intensify. The study adopts a non-linear analytical framework better suited to Nigeria's structurally rigid, high-inflation environment using Fuel price, Exchange Rate, Money Supply and Transport Cost as explanatory variables and Treshold effect of inflation as the dependent variable. Utilizing monthly time-series data from 2004 to 2025, the analysis employs the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration, complemented by threshold regression techniques to capture regime-dependent behaviour. The findings reveal that subsidy removal exerts a statistically significant and asymmetric effect on inflation, with the magnitude of impact varying substantially across inflation regimes. The estimated inflation threshold of approximately 13.5 percent represents a critical tipping point: below this level, fuel price increases generate moderate and transitory inflationary effects; above it, the same shocks produce disproportionately large and persistent price pressures. This non-linearity reflects the de-anchoring of inflation expectations, stronger pass-through coefficients, and diminished monetary policy effectiveness characteristic of high-inflation environments. Consequently, this study recommends gradual reform sequencing to coincide with periods of low and stable inflation, the implementation of targeted social protection measures to cushion vulnerable households, and enhanced coordination between fiscal and monetary authorities to anchor expectations and mitigate the inflationary consequences of necessary but disruptive policy adjustments. Keywords: Fuel Subsidy, Inflation Threshold, Non-Linear Effects.
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