Assessing The Predictive Performance of Selected Models on Inflationary Data in Nigeria.

Abstract

This study evaluates the effects of petroleum-product prices—Premium Motor 
Spirit (PMS or petrol), Automotive Gas Oil (AGO or diesel), and Dual-Purpose 
Kerosene (DPK or kerosene)—on inflationary dynamics and prevailing economic 
conditions in Nigeria from 2023 to 2026. Inflation was specified as the dependent 
variable, while PMS, AGO, and DPK prices constituted the explanatory variables. 
Selected econometric models and causality techniques were employed to analyse the 
relationships between petroleum-product pricing and inflation across states 
representing Nigeria’s geopolitical zones. The study also examined price trends, 
interdependence, distributional characteristics, and future movements of petrol, 
diesel, and kerosene prices within the selected states. Stationarity tests and 
descriptive statistics were applied to evaluate the time-series properties and price 
distributions of the petroleum products. The empirical results indicate that 
increases in PMS prices intensify inflationary pressures across the geopolitical 
zones. Furthermore, strong positive relationships were identified between inflation 
and the prices of PMS, AGO, and DPK, demonstrating that variations in petroleum
product prices are closely associated with changes in Nigeria’s general price level. In 
particular, increases in PMS and AGO prices exerted significant effects on inflation, 
largely through rising transportation and distribution costs. Based on these findings, 
petroleum-product price rates were forecast for petrol, diesel, and kerosene across 
the selected states in each geopolitical zone. The forecasts provide evidence 
regarding the likely future direction of petroleum-product prices and their possible 
inflationary consequences. The study concludes that sustained increases in 
petroleum-product prices, particularly PMS and AGO, constitute major drivers of 
inflation in Nigeria and may further increase production, transportation, 
distribution, and household costs throughout the economy.