Asymmetric Effect of Oil Price Shocks on Inflation Rate in Nigeria

Crude oil remains one of the most critical energy resources in modern industrial economies. The oil price shock is argued to have a significant impact on a number of important macroeconomic factors, including the real GDP, exchange rate, inflation rate, and oil revenue, to name a few. Hence, the broad objective of the study is to analyze the effect of oil price shocks on Inflation in Nigeria using time series techniques, and econometric models of the Non-linear Autoregressive Distributed Lags (NARDL) model. The oil price, and inflation rate data were collected for the periods of 44 years (1981 – 2024) from the Central Bank of Nigeria, and US Energy Information Administration (EIA). The results show that the control variable: exchange rate, real GDP and oil revenue have positive and significant relationships with inflation. In the long run, the effect of oil price shocks on inflation rate show that Other explanatory variables, such as: inflation, real GDP, and oil revenue, are statistically insignificant in explaining the long-term behavior of the exchange rate indicating a gradual upward trend in the exchange rate over time, likely reflecting structural depreciation pressures and cumulative macroeconomic developments. The short-run coefficients show that immediate oil price changes have differential effects on the exchange rate. Notably, positive oil price shocks are associated with a significant short-run depreciation. In contrast, lagged positive shocks and negative shocks are statistically insignificant in the short run. The study therefore, recommends that government/CBN should take the following appropriate measures such as: Strengthen monetary and fiscal policy coordination, and Improve oil production and security in the Niger Delta, Nigeria.