There are heighten concerns over a possible rise in inflation following the recent hike in the pump price of fuel and start of the deregulation of the downstream sector of the petroleum industry by the federal government.
The concerns are hinged on the fact that the removal of fuel subsidy on the fact that the regime was import-driven and gives marketers the freewill to source for foreign exchange in the secondary market to import fuel.
Stakeholders are of the opinion that the mad rush for foreign exchange at the secondary market could unsettle the nation’s economy which has caused untold hardship to the citizenry.
Besides, stakeholders said the federal government had in recent times subtly removed subsidy and accumulated more money under the guise of deregulation.
Chairman of Rivers State chapter of Trade Union Congress (TUC), Comrade Chika Unegbu, said between 1973 till date, the federal government adjusted fuel prices 19 times. Six of the adjustments, he said, occurred during civilian administrations.
Proponents of fuel subsidy removal say the recent action on fuel prices was the best thing to happen in the petroleum industry for it will stave off corruption embedded in the subsidy regime allowed a few and rich individuals access to cook books and demand for free funds they didn’t merit to claim.
Analysts at Afrinvest West Africa Ltd have stated that they anticipated the price review to mount further pressure on May inflation numbers but gains in productivity from petrol availability will partially offset in the short term while budget implementation will unlock more benefits in the medium term.
“We see inflation rate in April at 13.6 percent year-on-year and expect further increase in May driven by transport division and electricity, gas and other fuels which both contribute 23.2 percent to the CPI weighting,” Afrinvest said.
Nigeria’s annual inflation rose to a near six-year high of 13.7 percent in April, in part due to rising petrol and electricity prices, the National Bureau of Statistics (NBS) said.
Core Inflation Rate increased 13.40 percent in April over the same month in the previous year. Core Inflation Rate averaged 9.45 percent from 2007 until 2016, reaching an all-time high of 19.28 percent in January 2007 and a record low of 0.49 percent in March 2008.
Factors like the fall in global oil prices, the recent increase in electricity tariff, the continuous free-fall of the naira in the parallel market, likely pressure for wage increase, and, among others effectively set the stage for the rise in inflation, analysts say.
Nigeria’s worst economic crisis in decades has been driven by a sharp drop in oil prices that has slashed government revenues since the country relies on crude sales for around 70 percent of national income.
Gross domestic product growth was just 2.8 percent last year, its lowest rate since 1999, and speculation of a devaluation of the naira is growing. March inflation was 12.8 percent.
NBS said the high inflation rate in April – the highest level since August 2010, reflected increases across all sectors.
The Consumer Price Index (CPI) for April showed that prices of goods and services surged for the third consecutive month to 13.7 percent just as the food price index soared to 13.2 percent from March.
The rise in inflation in April followed the lingering structural constraints associated with higher electricity rates, household kerosene prices, the negative impact of higher premium motor spirit, popularly called petrol, prices and vehicle spare parts.
The NBS said the pressures from the above items as well as other imported items continued to have ripple effects across many divisions that contributed to the hike in core inflation rate.
The food index reflected tighter supplies across most groups, which increased at a faster pace driven by higher food prices in fish, bread and cereals, and vegetables groups.
Last week, the government announced it was scrapping a costly fuel subsidy scheme and increasing petrol prices by up to 67 percent.
NBS said petrol prices and electricity tariffs were major factors in the inflation rise. The new prices have yet to feed into the inflation figures, meaning more inflationary pressure could be building.
Inflation has also been fuelled by pressure on the naira, which has slipped to its weakest level in months against the dollar in the parallel market.
In March, the Central Bank of Nigeria (CBN) tightened monetary policy, raising the benchmark interest rate to 12 percent from 11 percent to try and curb galloping inflation – a surprise reversal that came just four months after rates were cut.
“The focus inevitably shifts to what sort of monetary policy reaction to anticipate,” said Razia Khan, chief economist, Africa at Standard Chartered Bank, looking ahead to the monetary policy committee meeting due on Monday and Tuesday.
“With the central bank governor previously stating that a headline inflation rate in excess of the MPR (benchmark interest rate) is undesirable, expectations of tightening are likely to build,” she said.
President of Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yussuf, said the new pump price of fuel may not necessarily trigger more inflation beyond the ordinary because “people naturally expected that prices of goods would rise due to the adjustment in the pump price of fuel.”
He also explained that the thought of more inflation as a result of the adjustment in the pump price of fuel is more on the expectation side than reality.
“Some cost of goods or foods had gone up when fuel was being sold at black market before the government pronounced the new pump price of the product,” Yussuf stated.
He advised the federal government to try as much as possible to ensure the stability of foreign exchange market with a view to aligning with the current pump price of fuel.
He also advocated the need for the federal government to fix infrastructures like power, road and transport sector in order to mitigate the hardship Nigerians may face as a result of the adjustment in the hike in fuel price.
“This will no doubt improve output, reduce cost of production and bring down inflation level,” he added.
To Femi Adetade, an economist, the new pump price of fuel will trigger more inflation because of the mono-economic structure the country operates.
‘’In Nigeria, every aspect of our lives revolves round oil and its prices. It is expected therefore difficult to separate our socio-economic life from the dynamics of the oil industry. I think government and other stakeholders in the economy have a role to play in arresting the spate of inflation and creating a safety net regime that would not necessarily expose citizens to the shocks in the economy,” he said.