The National Bureau of Statistics (NBS) released Nigeria’s inflation report last week, indicating a surprising decline in transport inflation for the first time in over two years.
Specifically, Nigeria’s transport inflation slowed to 27.04% in October 2023 from its two-year high of 27.18% recorded in the previous month.
Notably, the last time transport inflation declined was in July 2019. The decline was despite the surge in the cost of transportation across different regions in the country following the removal of the petrol subsidy and the surge in crude oil prices.
The removal of the petrol subsidy in Nigeria unleashed a seismic wave through the transport sector and the economy as large. Premium Motor Spirit (PMS) prices surged from a relatively modest average of N189 per litre to an astonishing N600, a staggering increase of over 200%.
This abrupt and substantial hike in fuel prices had a cascading effect, rippling across the country’s transportation networks.
As the cost of PMS soared, the nation witnessed a profound impact on transportation. The surge in fuel prices triggered a domino effect, affecting various modes of transport.
Also, with the subsidy removal, Nigeria experienced a significant depreciation of the national currency, the naira, against the USD.
The depreciation exceeded 40%, propelled by the floating of the local currency and the consolidation of multiple FX markets into the National Autonomous Foreign Exchange Market (NAFEM).
This devaluation further exacerbated the challenges faced by the transport sector, particularly the aviation sector.
The confluence of factors – subsidy removal, fuel price spikes, and currency devaluation – created a perfect storm for the air travel industry.
Already contending with the escalating costs of aviation fuel, airlines found themselves navigating an even more treacherous terrain.
Inflation is at its worst in over 18 years
According to the NBS, Nigeria’s headline inflation rose to its highest level in over 18 years, reaching 27.33% in October 2023 and representing the 10th consecutive month of increase.
A breakdown of the report showed that both components of the headline index grew at a faster pace.
- On one hand, food inflation rose to 31.52% from 30.64% recorded in the previous month, and the highest level since August 2005. On the other hand, core inflation accelerated to 22.58%, representing the highest since December 2006.
- In terms of contribution to the year-on-year inflation by divisional level, food and non-alcoholic beverages contributed the most with 14.16%, followed by household consumables (4.57%), clothing and footwear (2.09%), and transport (1.78%).
- The report also indicated that inflation in the urban region rose to 29.29%, while rural inflation galloped to 25.58% in the review month.
What experts are saying
During a Nairametrics Twitter Spaces session last week Thursday, Annie Olaloku Teriba, a policy and strategy consultant noted that the rising cost of transportation has partially contributed to the surge in Nigeria’s food inflation and by extension the headline index.
Samuel Oyekanmi, a macroeconomic analyst also supported that rising transportation cost has filtered into other parts of the inflation index, particularly the food component.
He noted that inflation has risen at a faster pace in the southern region of the country partially as a result of the impact of the rising cost of transportation on the final selling price.
Meanwhile, the decline in transport inflation could indicate stability in the price of transport across the country. It is worth noting that this does not imply a decline in the cost of transport but rather in the pace of price increases.
Beyond the realm of transportation, these economic dynamics carried broader implications for Nigeria’s economy.
The interplay of subsidy removal, fuel price hikes, and currency devaluation contributed to inflationary pressures, affecting businesses, consumers, and overall economic stability.
The government, faced with the complex challenge of balancing economic growth and stability, may need to consider strategic policy adjustments.