Nigeria’s transport inflation surprisingly falls for the first time in 2 years

The National Bureau of Statistics (NBS) recently released Nigeria's inflation report, revealing an unexpected decline in transport inflation for the first time in over two years. Specifically, transport inflation in Nigeria slowed to 27.04% in October 2023, down from its two-year high of 27.18% in the previous month.

This decline is noteworthy as the last time transport inflation decreased was in July 2019. It comes despite the surge in transportation costs across different regions in the country following the removal of the petrol subsidy and the rise in crude oil prices.

The removal of the petrol subsidy in Nigeria had a significant impact on the transport sector and the broader economy. The cost of Premium Motor Spirit (PMS) surged from an average of N189 per litre to an astonishing N600, a remarkable increase of over 200%.

This abrupt and substantial hike in fuel prices had a cascading effect on transportation, affecting various modes of transport across the country.

Moreover, the subsidy removal led to a substantial depreciation of the national currency, the naira, against the USD, exceeding 40% due to the floating of the local currency and the consolidation of multiple FX markets into the National Autonomous Foreign Exchange Market (NAFEM). This currency devaluation further compounded the challenges faced by the transport sector, particularly the aviation industry.

The confluence of factors - subsidy removal, fuel price spikes, and currency devaluation - created a perfect storm for the air travel industry, already grappling with escalating aviation fuel costs.

In a broader context, Nigeria's headline inflation reached its highest level in over 18 years, hitting 27.33% in October 2023. Food inflation rose to 31.52%, the highest since August 2005, while core inflation accelerated to 22.58%, the highest since December 2006.

Experts suggest that the rising cost of transportation has partially contributed to the surge in Nigeria's food inflation and the overall headline index. The decline in transport inflation, however, may indicate some stability in transport prices across the country, even though it doesn't necessarily mean a decrease in the actual cost of transport, but rather a slowing pace of price increases.

These economic dynamics, influenced by subsidy removal, fuel price hikes, and currency devaluation, have broader implications for Nigeria's economy. The government, facing the challenge of balancing economic growth and stability, may need to consider strategic policy adjustments in response to these inflationary pressures affecting businesses, consumers, and overall economic stability.