Energy Price Shocks and Monetary Policy Outcomes: The Narrative of a Refined Oil-Importing Economy

This study investigates how shocks from imported refined fuel prices influence inflation, exchange rates, and monetary policy outcomes in Nigeria an oil producer but net importer of refined energy. Using monthly data from 2000–2024, the analysis reveals that increases in Premium Motor Spirit (PMS) prices exert only a modest and short-lived impact on inflation, with a pass-through of less than 5 percent, indicating limited cost-push effects. Conversely, the Monetary Policy Rate (MPR) exerts a strong influence on the parallel market exchange rate, explaining over 60 percent of its forecast variance, but has minimal effect on inflation. These findings suggest that recent inflationary pressures in Nigeria stem more from structural factors such as food supply disruptions and exchange rate misalignments than from energy price shocks or subsidy removal. The study contributes to the literature by reframing Nigeria’s energy-inflation nexus from the perspective of refined fuel import dependence, underscoring the need for coordinated fiscal and structural reforms to complement monetary policy in achieving price stability.