Higher PMS price to exacerbate inflationary pressures, says report

A report by Cordros Research hinted that higher Premium Motor Spirit (PMS) or petrol price to exacerbate inflationary pressures in Nigeria, projecting about 32.64 per cent inflation rate in 2024.

 The Nigerian National Petroleum Company Limited (NNPCL) effectively increased the base pump price of PMS by 47.4per cent to N855.00/litre on September 3, up from N568.00/litre.

Cordros Research stated that, “This price adjustment follows a period of acute PMS scarcity and NNPC’s acknowledgement of substantial debt owed to international oil traders, which had constrained PMS supply. Coinciding with this development, Dangote Refinery Limited (DRL) announced the commencement of PMS production at the Dangote Refinery.

“Given the strong correlation between fuel costs and transportation expenses, coupled with its broad impact on the consumer price index, we foresee a further increase in inflationary pressures in the near term. Consequently, we have revised our base case average inflation projection for 2024E upwards to 32.64% (previous: 31.47per cent).

“Our initial inflation forecast anticipated a softer increase in PMS prices in H2 2024. Specifically, we forecasted PMS prices to retail in the N675.00/litre to N775.00/litre band in H2 2024, slightly higher than the N668.30/litre – N769.62/litre range in H1 2024.

With the aforementioned, alongside an anticipated reduced naira volatility, we estimated an average inflation of 31.47per cent for 2024E, with a year-end print of 28.45per cent y/y. However, recent developments have necessitated a revision of these projections.

“We believe the faster than expected 47.4per cent surge in PMS prices, coupled with the persistent naira volatility, is likely to intensify inflationary pressures and underpin a slower pace of disinflation for the rest of the year.

“Precisely, the strong correlation between PMS prices, transportation (83per cent) and core inflation (76per cent) underscore the far-reaching impact of the higher price levels. We anticipate that rising energy and transportation costs, which constitute 21per cent and 13.0per cent of core items, respectively, will drive core inflation higher.

“In the same vein, the tight link between transportation costs and food inflation (84per cent) suggests a significant pass-through effect on food prices. While the commencement of the main harvest period in mid-September is expected to slowdown food prices, we believe the increase in logistics costs could reduce the pace of decline.

“Overall, we still project a moderation in headline inflation for August (32.24per cent y/y vs July: 33.40v y/y) due to the high base effect from August 2023 (3.18per cent m/m vs August 2024E: 2.29per cent m/m). However, we expect increases in September (32.33 per cent y/y) and October (32.57 per cent y/y) before falling to 32.09 per cent y/y by year-end.

“Consequently, we have revised our average headline inflation projection upwards to 32.64 per cent for 2024E (previous estimate: 31.47 per cent y/y).”