Fuel Pricing, Inflation and Nigeria’s Economic Stagnation

A few days ago, when the National Bureau of Statistics (NBS) released the inflation figures for August 2024, the Nigerian National Petroleum Company Limited (NNPCL) also issued a new fuel pricing template. Curiously, while the NBS data showed marginal drop of inflation rate (year-on-year) from 33.40% in July to 32.15% in August, the NNPCL’s new pricing template for fuel (Premium Motoring Spirit, PMS) showed a hike from N600 per liter early September to as high as N950 to N1,020 per liter (in various locations), effective, immediately.

Without a doubt, it was the quantum jump in the prices of PMS last year sequel to the “fuel subsidy removal” that largely drove steady rise in inflation rate in the past one year. Indeed, the jump in petrol pump price, from below N200 per liter in May 2023 to N600-N700 per liter by June 2023, drove the prices of practically all goods and services sky-high in the country—culminating in runaway inflationary trend. Notably, from a level of 22.8% in June 2023, inflation rate peaked at 34.20% in June this year, before the marginal drops in July and August. And this trend has wrecked the economy all along.

The fuel subsidy removal by President Bola Ahmed Tinubu-led administration on May 29, 2023, immediately translated to spike in PMS prices, in transportation costs, in food prices, etc. All these, coupled with the havoc on the polity engendered by the failed Naira floatation policy, pulled the economy further into the woods. For, the crash of the Naira in the foreign exchange (FX) market vis-à-vis the dollar and other hard currencies caused a drain on the nation’s resources, as PMS importation continued unabated.

Now, the continued rise in the ‘landing cost’ of PMS because of continued importation and weakening exchange rate of the Naira, provide ready-made excuse for the NNPCL to keep raising fuel pump prices ad infinitum. Yet the correlation between rising pump price of PMS and the spiraling rate of inflation is not only high but also obvious and also disruptive of many economic activities.

In point of fact, since end-May 2023 to date, the apex bank—the Central Bank of Nigeria (CBN)—has been battling to rein in the runaway inflation rate. Its Monetary Policy Rate (MPR) has been targeted at curtailing the rampaging inflation. Thus, from a level of 18.00% in May 2023, the CBN has had to lift the MPR to 26.75% by May 2024—all in the belief that the instrument could help in curbing the rising inflation. Other monetary policy instruments have been similarly adjusted to ‘fight’ the soaring inflation rate, to no avail.

The upshot of all these however has been the ‘unintended’ pricing of credit beyond the reach of most genuine businesses in the country, especially the Small and Medium-scale Enterprises (SMEs). On a foundation of already high cost of operation due to high inflation (resulting from high PMS prices), hike in MPR by the apex bank practically got most SMEs asphyxiated. Many have had to scale down operational capacity; and not a few others opted to close shop.

The same high PMS-price-induced inflation has in the past one year impoverished many Nigerians, reducing their purchasing power to the lowest ebb. This reality has necessitated protests by civil and public servants in various towns and cities across the country. One of the multiplier effects of this has been the long-drawn ding-dong between the Organized Labor and the Federal Government with respect to a new minimum wage.

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The tension-soaked new minimum wage negotiations and tactics adopted by the Government on one hand and the Organized Labor and Civil Society Organizations (CSO) on the other, almost crippled the economy. Alongside this crippling high inflationary pressure has been the Government’s resort to the provision of palliatives to assuage the lingering pains of poverty and despair among the citizenry. Indeed, the absence of any visible economic development roadmap of the Federal Government, Nigerians have been left at the mercy of ‘government by palliatives’—waiting for crumbs from within and outside the country.

At the Federal and sub-national levels, the Government of the day has come to be known more for the dispensation of palliatives than the effectuation of any economic plan for sustainable economic progress. But all that has been in place only amounted to “giving the people fish to eat, rather than teaching them how to fish.” Thus, rather than the economy getting more productive, people are being made to live on crumbs.

As the high inflationary trend persists, with its implied erosion of the purchasing power of the people, not a few state governments have had to reduce the number of days per week that their civil servants have to physically report for work in their offices. And truly, most of the civil servants could no longer afford the high cost of transportation engendered by high prices of PMS; hence, the reduction of week days as part of the palliatives packages.

This obviously redounds to waste of manpower and avoidable drop in productivity—which translates to retardation of the rate of national economic growth. No doubt, Nigeria has been able to achieve only a weak gross domestic product (GDP) growth of only about three per cent each quarter in the past one year. And with the inflation-driving power latent in high PMS prices, the new NNPCL’s fuel pricing template has the capacity to further spike rather than calm the roaring inflation tempo.

The new PMS pricing template surely portends further soar-away inflation; further crashing of the purchasing power of Nigerians, especially for the low-income families. Almost already at the bottom of the economic abyss courtesy of the lingering high inflation, most Nigerians would keep lowering their standard and cost of living in the as PMS prices keep soaring. Meaning that many more would be pushed below the poverty line!

By implication, as inflation runs rampant, consumers would more likely spend their money only on products and services that they absolutely need, and hold back on what they don’t. This implies that some more businesses are still likely to shut down, further exacerbating the stress on the already battered economy.

Recall that a few weeks ago, an agency of the Federal Government, the Federal Competition and Consumer Protection Commission (FCCPC), almost at its wits end, dabbled into price control to ‘deal’ with the rampaging inflation. The FCCPC in what looked like a fiat, gave businesses a month ultimatum to crash prices of their products or face some sanctions. This move, although intended to fight inflation, elicited wide criticisms and ire of Nigerians of all social strata, who in unison, condemned such an order. Rather, the Government was advised to address the country’s economic challenges in a more realistic manner.

In the circumstances at present, the NNPCL should reconsider, and withdraw its latest PMS pricing template, to save the Nigerian economy from more ravaging effect of high inflation. Rather than continuing to dictate fuel prices, the NNPCL should allow market forces to play that role—more so in the so-called liberalized mid- and downstream oil sector. It’s not yet late for the agency to recant or revoke the PMS pricing template. Doing otherwise is highly ominous for the economy.

• The author, Okeke, a practicing Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: [email protected] (08033075697 SMS only)