Petrol Pricing And Running Inflation

Between last year and now, Nigeria has been experiencing running inflation, with costs of goods and services skyrocketing. Few days back, the Group Managing Director of the Nigerian National Petroleum Corporation, Mallam Mele Kolo Kyari, announced that over N120 billion was being spent on fuel subsidy monthly.

If such a whopping amount is spent on subsidy for 12 months, it will amount to over N1trillion. However, removing the subsidy will lead to market-determined petrol prices.

The current expected price is N234. With the weakening Naira and gradually rising oil prices, there is the possibility that the expected market price could at some point rise above N300. By all indications, the Federal Government is likely to approve another petrol price increase in the coming weeks. However, in taking the action, the government should look deeply into what the impact could be.

Right now, more and more Nigerians are living below the poverty line as the purchasing power of the people dwindles on daily basis. With running inflation and unemployment and poverty rising, the government must perform a delicate balancing act. It needs to find an ingenious way to reduce subsidy cost and ensure that the poverty level does not continue to rise as a result of rising costs.

Nigeria’s inflation rate is presently 17.33 % and it has been rising on a month-by-month basis for over one year. One does not need to be a soothsayer to forecast that another petrol price increase will further push up the inflation rate, thereby worsening the poverty situation. While we believe that in the long run petrol should be appropriately priced, in the short term, we feel that the Federal Government should take a gradual approach towards appropriately pricing the product. That should minimize the impact the increase will have on cost of living.

Increasing the price gradually will also give the government an elbow room to put in place buffers that would cushion the effect of a totally deregulated downstream sub-sector. The problem is that the government at all levels has failed to establish a working mass transit system that could mitigate the effect of rising petrol prices on the populace. The government has been reactive rather than proactive.

Also, while Nigerians continue to tighten their belts, we also expect to see some belt- tightening among government functionaries at all levels. Government officials cannot continue to spend money lavishly while they expect the masses to always bear the burden of austerity. Pleas by the government to Nigerians to swallow the bitter pill of petrol price increase will definitely fall on deaf ears when they remember wasteful practices by government functionaries on a daily basis.