Causal and Dynamic Interactions between Petrol and Food Prices in Nigeria: A Toda-Yamamoto Causality Approach and Impulse Response Analysis

Abstract

This study explores the causal and dynamic interactions between petrol prices and food prices in Nigeria using monthly time series data from January 1995 to January 2025. Specifically, first, the study ascertained if changes in petrol prices can significantly predict food prices using the Toda-Yamamoto causality approach. Second, the study examined the dynamic response of food prices to price shocks or impulse in petrol prices using the impulse response function of the vector autoregression. It was discovered that a significant bi-directional causality relationship exists between petrol price and food prices in Nigeria. It was also discovered that increases in petrol prices lead to increases in food prices, suggesting a significant impact of petrol price shocks on food prices. The study concluded that petrol prices significantly predict food prices; and food prices respond positively to changes in petrol prices.