Fuel Price Hike, Rising Inflation Top Agenda as MPC Begins 292nd Meeting Tomorrow

The harsh economic climate exacerbated by the recent policies of government including fuel subsidy removal and the foreign exchange market reform will dominate deliberations at the Central Bank of Nigeria’s Monetary Policy Committee meeting starting tomorrow, writes Festus Akanbi

As members of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) gather for the 292nd edition of their meeting in Abuja tomorrow, analysts in their preview said issues that would be listed for discussion include the spiralling inflation which is worsened by last week’s increase in the pump prices of petrol, the instability in the foreign exchange market, and the way forward out of the current logjam.

Analysts said that the current level of hardship which is obviously induced by the current inflationary pressures and the hike in the price of fuel is putting pressure on the MPC to come up with an interest rate regime that will ease the tension in the economy at its meeting which ends on Tuesday.

 High Cost of Living

Nigerians were still bemoaning the fate of the nation’s economy with the latest rate of inflation as released by the National Bureau of Statistics (NBS) last Tuesday when the Nigerian National Petroleum Company (NNPC) Limited announced an increase in the pump price of petrol for its outlets, prompting other fuel marketers to also adjust theirs. The pump price of petrol was raised from N537/litre to N617/litre at some filling stations operated by the NNPCL in Abuja. Independent oil marketers confirmed the increase in the cost of the commodity, as they stated that any shift in price by NNPCL stations was an indication of a rise in the pump price of petrol. This is because NNPCL is still the major importer of petrol into Nigeria currently, though other marketers are gradually importing the commodity.

Like wildfire, the development spread its reverberations all over the country as transport fares and the general cost of goods and services hit the rooftop immediately. It was a tale of woes for Nigerians who bore their minds on various radio and television programmes monitored last week amid warnings from analysts that producers of goods and services will soon begin to experience customers’ apathy. 

Analysts, who stressed the need for urgent actions to cushion the effects of the pains, warned that productivity will be affected because it will be unreasonable to expect workers to put in their best in a situation where their salary cannot take care of their responsibilities.

And in its reaction to the cry of anguish, the Nigeria Labour Congress (NLC) has warned that it may be forced to withdraw from the dialogue with the federal government over the cushioning of the hardship brought on Nigerians by the withdrawal of petrol subsidy by President Bola Tinubu. The Union president, Joe Ajaero, in a statement, accused the government of callousness, saying its palliative measures to address the repercussions of the subsidy removal lack transparency.

Rising Inflation

In its latest report, the NBS revealed that the headline inflation rate rose by 0.38 percentage points to 22.79% in June 2023, relative to 22.41% in May 2023, and 4.19 percentage points higher on a year-on-year basis when compared to the 18.60% reported in June 2022. This indicates the sixth straight month in 2023 of the continued buildup of inflationary momentum in Nigeria, while the current rate of 22.79% indicates the highest since March 2004.

Since the withdrawal of subsidy on petrol and the floating of the naira against the dollar, marketers had continued to explain that the cost of PMS could rise to as high as N700/litre. Today, Nigerians are in the throes of unprecedented hardship with the soaring cost of living.

Across Nigerian states, the inflation rate was highest in Lagos (25.75%), Ondo (25.40%), and Kogi (25.23%), while the likes of Borno (20.44%), Zamfara (20.93%), and Ekiti (21.06%) recorded the slowest rise in headline inflation on a year-on-year basis. And then, on a month-on-month basis, Ogun (3.21%), Plateau (3.05%), and Jigawa (3.00%) reported the fastest increases but were slow in Zamfara (1.40%), Delta (1.42%), and Rivers (1.54%).

Serious Repercussions on Businesses

According to the analysis of Cowry Asset Management Company, businesses will face higher costs, which could lead to lower profits and job losses while it becomes riskier for investors to invest in Nigeria. 

“Overall, the 2023 outlook for inflation stays elevated and uncertain at this time, and our prognosis has it that factors such as the large budget deficit of the government, the proposed or planned hike in electricity tariffs, planned increase in flour prices by flour millers, continued naira depreciation, among many other factors, could further put upward pressure on inflation,” it said in its preview of the MPC meeting. 

 MPC Meeting

It, however, said the MPC at its meeting is likely to raise the interest rate to contain inflation, warning however that this could hurt businesses and consumers as against the expectations of the markets in line with the recent policy reforms by the new administration for interest rates moderation.

And as observed by analysts from Financial Derivatives Limited, the prevailing high cost of goods is forcing consumers to look for alternatives.

FDC, in a report, said that producers and consumers are adopting various means to muddle through high inflationary pressures. It pointed out that for example, manufacturers are reducing the quantity and the value of their products to avoid increasing prices considering the level of competition within the industry. It also noted that consumers are also switching to cheaper substitutes and alternatives to protect themselves from higher prices as disposable income falls, adding that as consumers turn to cheaper products, there is a high risk of the influx of adulterated products into the market.

Foreign Exchange Challenges

The FDC report noted that despite the changes in the foreign exchange market structure, forex supply remains insufficient. On both the IEFX window and the parallel market, the exchange rate is now trading above N800/$. It pointed out that the depreciation of the exchange rate raises the risk of further price increases in the coming months as imported commodities become more costly.

Analysts fear that the government’s effort might be constrained by the paucity of dollars with a source claiming that the NNPCL has not been able to pay in dollars in two years due to oil theft and swaps. This came amidst the speculation that the CBN is converting dollars revenues and giving the three tiers naira, using the prevailing exchange rate.

An economic analyst listed the exchange rate and the marginal increase in the price of crude oil in the international market as factors responsible for the rise in the cost of petrol. She stressed the fact that whereas the CBN has no control over the latter, it has control over the former by intervening in the FX market, beating her chest that if market players are aware that CBN is ready to step in for a few months with about half a billion dollars to $1bn monthly, demand pressure will reduce. 

According to her, “We make dollar inflows from oil royalties, PPT and NLNG dividends. They may not be as much as those that come from crude oil sales, but it is something the CBN can lean on as an interim measure. Ideally, an IMF-backed facility would have been better. But in its absence, CBN can use the dollars it is getting from other sources.”

Another market watcher, however, noted that the federal government is trying to raise dollars with little success, “We just paid off Eurobond and have never defaulted. It will take some six months to reach stability if all policies align! With no CBN Governor and no finance minister in place, it will take longer to build confidence,” he said.