Oil-food price dynamics in an oil-dependent emerging economy

Purpose This paper aims to examine the transmission from oil price to local food price returns in Nigeria from January 1995 to May 2019. Design/methodology/approach To circumvent erratic behaviours and account for possibilities of noises at the edge of the wavelet signals, the paper combines wavelet and Markov-switching techniques to determine the significance and magnitude of oil–food price dynamics across different time scales. Findings It is shown that oil to food price pass-through changed across frequencies. Notably, results reveal a swift pass-through which signals the dominance of the direct effect of oil price shocks on food prices with evidence of weak spillover in the short term. The medium- and long-term horizons witness the dominance of the indirect effect of oil price shocks with much sluggish transmission to food prices; the highest significant pass-through of about 4% are also observed when the oil price is denominated in the naira–USD exchange rate. Originality/value The study improves understanding of the relationship between oil price shocks and domestic food price returns. It shapes policy prescription on appropriate inflation targeting strategies of monetary authorities.