Fuel subsidy reform, food price inflation, and household welfare in Nigeria: insights from an ARDL bounds testing analysis
Moore O. Raymond, and Glory Chibuzo Agu
Abstract
This study investigates the influence of fuel subsidy removal and food inflation on household welfare in Nigeria from June 2023 to December 2025, covering the post-subsidy removal era, which began on May 29, 2023. Monthly secondary data on household consumption expenditure (HCE), fuel pump price (FPP), consumer price index (CPI), and exchange rate (EXR) were obtained from the National Bureau of Statistics (NBS), Nigerian National Petroleum Company Limited (NNPCL), and the Central Bank of Nigeria. The Augmented Dickey-Fuller (ADF), Phillips-Perron (PP), and KPSS unit root tests demonstrate that all variables are integrated to order one [I(1)]. The Autoregressive Distributed Lag (ARDL) bounds testing approach validates cointegration, while an Error Correction Model (ECM) was calculated to separate short-run dynamics from long-run equilibrium effects. Results show that fuel pump prices, food inflation, and currency rate depreciation all have a negative long-run impact on real household consumption expenditure, with elasticities of -0.483, -0.325, and -0.219, respectively. The ECM value of -0.412 indicates a reasonably rapid correction of around 41% of any disequilibrium every month. Diagnostic tests confirm model stability, the absence of serial correlation, and parameter consistency across the estimation horizon. The findings emphasize the importance of targeted social protection systems, transparent downstream petroleum pricing regulation, and currency rate stabilization in Nigeria's subsidy reform.