Interactive Effect of Crude Oil Price and Exchange Rate on Food Price Index in Nigeria
Dennis, Brown EWUBARE, Sonny Nwonodi AMADI, Sancho Nwobuisi CHUKWU, Victor Oyaretor EBOHOIN
Abstract
This study empirically evaluated the effects of oil price and exchange rate on food price index in Nigeria from 2001Q1 to 2023Q4. The study proxied oil price and exchange rate by crude oil price and real exchange rate interaction, crude oil price and real exchange rate. In order to achieve the objectives of the study, quarterly data were used and these data were sourced from the Central Bank of Nigeria (CBN) statistical bulletin, World Development Indicators (WDI) of the World Bank and International Energy Agency. The techniques of data analysis adopted are the Autoregressive Distributed Lag (ARDL) processes. The key findings of this study showed that crude oil price interaction with real exchange rate, and real exchange rate indicated significant positive effects on food price index. On the other hand, crude oil price showed significant negative effects on food price index. Therefore, the study concluded that oil price and exchange rate have exerted significant upward influence on food price index in Nigeria over the sampled period. It was therefore recommended among others that economic diversification, to reduce the economy’s vulnerability to crude oil price shocks. The development of non-oil sectors like agriculture, manufacturing, and technology will reduce the dependency on oil revenues and insulate the real exchange rate from oil price volatility thereby leading to more stable consumer prices. It was further recommended that Policy makers should ensure the emplacement of a robust and transparent foreign exchange market, devoid of speculative activities and improve liquidity as well as remove artificial controls that distort the real exchange rate.
Keywords
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