ENHANCING THE EFFECTIVENESS OF MONETARY POLICY IN COMBATING INFLATIONARY PRESSURES: PROBLEMS, PROSPECTS AND REMEDIES

PETROLEUM PUMP PRICE AND INFLATION RATE IN NIGERIA (1981-2015)

CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Nigeria is richly blessed with natural resources of which crude oil products play a key role. On the domestic economy, the petroleum sector generates over
90% of the country’s foreign exchange earnings, and provides employment in various forms to Nigerians citizens. Nigerian Government has been the
custodian of petroleum and its products. Though, this brought a temporary growth in the economy, the price instability of the crude oil in the world market
has led to the downfall of Nigerians economy in various sectors, such as the production, manufacturing and services sectors. The earnings from the oil have
influenced significantly Nigeria’s international relations, and sometimes the politics of oil has taken centre stage in the nation’s history of international
relations in the last few decades. Petroleum products are derived from crude oil and they include petrol, diesel, kerosene, natural gas, bitumen etc. The origin
of the persistent rise in prices of goods and services can be traced to government and its use of the oil revenue. Evidence has shown that petroleum export
earns valuable foreign exchange to Nigeria. Indeed, the occasional petrol shortages experienced by Nigerian due to inefficient distribution, which is as a
result of incompetence and corruption on the part of bureaucrats and the business class. However, the persistent instability of crude oil prices in the global
market has been revealed to have adversely aected
macroeconomic performance of the Nigerian economy (Mba-Afolabi, 2008; Labys, 2006; Nwosu, 2009;
Arinze, 2011; Runl, 2011; Bobai, 2012) owing to the fact that Nigeria is a monoculture economy which is heavily depending on crude oil export for its foreign
earnings. Crude oil price instability has been found to act production cost of foreign firms and since Nigeria is import dependent, an increase in crude oil
prices makes imported goods to be very expensive which in turn is transmitted to domestic prices by raising the general price level. The upward review of domestic prices of petroleum products was necessitated by the high spot market price of crude oil and the need for higher margins for the Nigerian National Petroleum Corporation (NNPC) to meet operational and capital costs. Petroleum pump prices in the domestic market have been under governments control since 1973 when it was handed over from the private oil companies (Iwayemi, 1993)

PETROLEUM PUMP PRICE AND INFLATION RATE IN NIGERIA (1981-2015)