Tuesday’s petrol price shock has heightened fears of further increases in inflation numbers. This is bound to inflict more pain on citizens and businesses.
The NNPC Ltd. raised pump prices to N855 and N897 per litre up from N617/l a few days after the national oil company admitted it was in dire financial straits. Independent marketers adjusted their prices to between N930 and N1,200/l.
In a country where the price of petrol has a cascading effect on prices, especially transportation, food, and other life essentials, this is another sobering moment. Transporters in major cities have hiked fares by up to 50 per cent. Commuters now trek long distances to work or are not showing up at all. Business owners fear lower patronage.
Nigerians have had no respite from significant and continuous price increases affecting all goods and services since President Bola Tinubu cancelled petrol subsidies in May 2023. Prices jumped from N195 upwards to N600 following the naira devaluation.
Presidential spokesman, Bayo Onanuga, insisted the NNPC risked collapse if it continued to subsidise petrol. Nigerians are disappointed that the price hike coincided with the announcement that the Dangote Refinery had started petrol production without the anticipated price reductions.
Hopes that Nigeria’s inflation rate had started to trend downwards have now been dashed. Inflation dipped marginally in August to 33.4 per cent, down from 34.19 per cent a month earlier. The latest 66.4 per cent petrol price hike will return that metric on a sky-bound trajectory.
The development has effectively derailed the CBN’s year-end inflation target of 21.4 per cent, which the Governor, Yemi Cardoso, had in February, said would be achieved through the Bank’s inflation-targeting policy.
Inflation rose from 22.4 per cent in May 2023 to 33.95 per cent a year later following petrol subsidy removal and naira devaluation. This marked the highest rate since March 1996 and an extension of 16 months of consecutive increases. The Bank will have to dig deeper into its box of tricks to address this unfolding scenario.
The Manufacturers Association of Nigeria has warned that expected higher inflation could spell doom for companies, especially MSMEs, which have been limping along on thin margins. MAN said the price hike would translate into increased production and logistics costs for manufacturers and other businesses that could force some to scale down operations or even shut down.
These grim prospects pose a huge challenge for the government as it tries to find a balance between easing the fuel subsidy burden on the economy initially estimated to reach N5.4 trillion by year-end.
Over the past 15 months, Nigerians have endured a cost-of-living crisis. Food inflation surged to 40.9 per cent in June up from 25.3 per cent a year earlier as prices of staples become increasingly out of reach for households.
While the NNPC price adjustment suggests that the petrol subsidy has been removed or reduced much more significantly, the Federal Government must prepare to intervene to cushion the inevitable fallout. This should go well beyond the tokenism associated with the distribution of so-called palliatives.
MSMEs, which house over 39.6 million businesses and make up 96.7 per cent of all enterprises in the country, need to be supported with more incentives, especially tax relief.
The risk of further social unrest with labour unions, students and civil society warming up to challenge the petrol price hike means that the government must engage meaningfully with all stakeholders.
The government must ensure that fuel prices are tamed in the short term with sustained supply from local refineries. The naira crude sales arrangement with Dangote Refinery must be extended to all domestic refiners. The NNPC refineries should be sold outright. Given their murky history, no serious investor will enter any concession arrangement as proposed.
