Asymmetric Impact of Oil Price Shocks on Food Inflation in Nigeria: A Nonlinear ARDL Approach

Abstract

Oil price movements are a major source of macroeconomic instability in oil-dependent economies because they affect production costs, exchange rates and domestic prices. In Nigeria, where food accounts for a large share of household spending, understanding how oil price shocks influence food inflation is important for policy design. This study examines the asymmetric effects of oil price shocks on food inflation in Nigeria using a Nonlinear Autoregressive Distributed Lag (NARDL) model. Monthly data from January 2006 to November 2025 were obtained from the Central Bank of Nigeria and related commodity databases. Food inflation is measured as the year-on-year percentage change, while crude oil price and exchange rate capture external transmission channels. The Augmented Dickey-Fuller test shows that all variables are integrated of order one, meeting the conditions for NARDL estimation. The results indicate that oil price shocks have no statistically significant direct effect on food inflation in either the short or long run. However, exchange rate movements are marginally significant at the 10 percent level, suggesting a stronger role in transmitting external shocks to domestic food prices. The bounds test confirms a long-run relationship among the variables, with an F-statistic of 9.2722, above the 1 percent upper bound critical value. The Wald test also confirms significant asymmetry in both the short run (8.9241, p = 0.0115) and long run (7880.3270, p = 0.0000). Diagnostic tests show parameter stability, though residual heteroskedasticity exists. The findings suggest that exchange rate dynamics are more important than direct oil price transmission in explaining food inflation in Nigeria. The study recommends policies that promote exchange rate stability, reduce import dependence and strengthen domestic supply chains.