The Centre for the Promotion of Private Enterprise (CPPE) has issued a warning regarding the increasing global oil prices linked to the conflict between the United States and Israel with Iran, which could jeopardize Nigeria’s current disinflation progress.
The CPPE highlighted that the decline in inflation recorded in February merely indicates a slowed rate of price increase, rather than a genuine drop in living expenses or enhanced business profitability.
According to the National Bureau of Statistics (NBS), the inflation rate for February showed a slight decrease to 15.06% from 15.10% in January, with a significant drop from the 26.27% noted a year earlier. However, food inflation saw a rise, climbing to 12.12%, an increase from 8.89% in January.
In a statement released on Sunday, the CPPE commented on the NBS findings, emphasizing that the observable improvement in the headline inflation is fragile and does not indicate a robust change in the inflationary landscape.
The CPPE warned of rising transport and energy costs continuing to erode purchasing power, particularly affecting urban and vulnerable households whose real incomes are under significant pressure.
Furthermore, the organization highlighted that the operating environment remains highly challenging for small and medium-sized enterprises (SMEs) due to soaring energy and logistics costs, restricted pricing flexibility, and weak consumer demand.
The ongoing conflict in the Middle East has led to a spike in crude oil prices that has crossed the $100 per barrel mark by Day 23 of the conflict, primarily due to increased risks to vital global supply routes like the Strait of Hormuz.
If the current trend of increased fuel prices for petrol and diesel, along with rising costs of transportation and logistics, continues combined with renewed pressure on exchange rates and food costs from higher production and distribution expenses, the CPPE warns that the present disinflation trend could be reversed.
The organization also pointed out that the structural inefficiencies of Nigeria's economy heighten the country’s susceptibility to energy-induced inflation. A heavy reliance on petrol and diesel for power generation, due to poor electricity infrastructure, contributes to a direct correlation between global oil prices and domestic inflation rates.
The CPPE further noted that the lack of reliable electricity results in annual economic losses estimated between N7 trillion and N10 trillion, with expenses for generator power reaching over N3.7 trillion each year. This dependency leads to significant increases in production costs, transportation fees, and overall price levels throughout the economy.
To address these challenges, the CPPE advocates for policy interventions aimed at bolstering domestic refining capabilities, ensuring a steady supply of crude oil to local refineries, including the Dangote refinery, under favorable and predictable conditions.
Additionally, the agency suggested that enhancing public transportation systems would serve as a crucial social protection measure, alleviating transport cost burdens on households.
The organization also called for the removal of fiscal barriers to renewable energy implementation and the suspension of maritime charges to alleviate shipping costs exacerbated by rising marine insurance premiums globally. Furthermore, there is a critical necessity to enhance electricity supply as reliable power represents the most viable long-term strategy to mitigate Nigeria’s energy cost crisis.
The CPPE concluded with a recommendation for businesses to adopt flexible work arrangements to alleviate commuting costs in response to soaring fuel prices and urged monetary and fiscal authorities to exercise caution with potential policy adjustments, given the resurgence of monthly inflation and external shocks.
It stressed the importance of managing oil revenue gains prudently to reinforce foreign exchange reserves while supporting crucial sectors of the economy.
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