Asymmetric impacts of retail energy prices on inflation in Nigeria

This study investigates the asymmetric impacts of retail energy prices on inflation in Nigeria, focusing on the period from Q1: 2010 to Q2: 2024. Utilizing secondary data sourced from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS) e-library, we examine how fluctuations in petroleum prices (PMS and AGO) influence both food and headline inflation. The analysis employs a nonlinear ARDL approach to capture the distinct effects of rising versus falling energy costs, revealing significant asymmetries in their impact on inflation indices. Our findings indicate that increases in fuel prices exert a pronounced inflationary pressure, particularly on food prices, while decreases lead to muted deflationary effects. The results emphasize the need for comprehensive policy interventions to mitigate fuel-driven cost-push inflation. Specifically, we suggest revisiting the framework for fuel subsidy removal to prevent abrupt price shocks that could burden consumers. Additionally, establishing an Energy Price Stabilization Fund (EPSF) could help stabilize food prices during periods of high energy costs by providing targeted support to the food market. Moreover, managing the exchange rate to minimize extreme fluctuations could further alleviate inflation pressures associated with import costs. Finally, strengthening inflation monitoring systems will enhance the government's ability to respond proactively to inflationary trends, ensuring timely interventions. These policy recommendations aim to create a more stable economic environment, reducing the inflationary impact of volatile retail energy prices and improving overall economic resilience in Nigeria.