Shortly after the announcement of a concerning 18-year-high inflation rate of 24.1%, the Nigerian President took the decision to suspend gasoline price hikes. Simultaneously, the acting central bank governor issued a warning to foreign-exchange traders against betting against the naira. These actions, as reported by Bloomberg, seem to undermine the President’s previous significant steps taken upon assuming office in May.
These steps included the elimination of fuel subsidies that had been costing the government substantial amounts annually, as well as allowing the currency to have a more flexible trading status. While these policy choices were intended to bolster the long-term health of Nigeria’s struggling economy, they’ve led to financial strain for the average citizens. Gasoline prices have doubled, and coupled with the devaluation of the naira, this has resulted in increased costs for essential goods.
Despite the government’s attempts to mitigate the impact by distributing subsidized grain and deferring taxes, investors, who initially welcomed the President’s decisive actions, have become concerned about his wavering stance. This concern was reflected in Nigeria’s dollar debt being the weakest performer in emerging markets on two separate occasions this week, following the decision to cap fuel prices.
Regarding inflation, the damage has been done, severely diminishing the purchasing power of Nigerians. Unless the President can navigate his way out of this situation, he risks disappointing both his citizens and the markets. A week prior, Nigeria had announced the suspension of gasoline price increases, even as crude oil prices were on the rise, in an attempt to curb the escalating inflation. This decision to halt price hikes comes nearly three months after President Bola Tinubu had eliminated costly subsidies, leading to notable price hikes across various sectors.
“According to Ajuri Ngelale, the president’s spokesperson, the President is firmly convinced, based on available information, that we can uphold the current pricing structure without reversing our policy of deregulation. This will be achieved by promptly addressing the existing inefficiencies within the midstream and downstream petroleum sector. Ngelale did not provide specific details regarding these actions.
Tinubu took action shortly after the inflation rate in Africa’s largest economy reached a new 18-year high. The National Bureau of Statistics reported that consumer prices surged by 24.1% annually in July, up from 22.8% in the preceding month.”
