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World Bank warns subsidy removal will increase Nigeria’s inflation by 2.5%

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Increase in petrol price inevitable –Rewane

The World Bank has said that removing the petrol subsidy in January 2022 could cause the headline inflation rate to rise by an additional 2.0–2.5 percentage points.

The bank stated this in the November edition of its Nigeria Development Update.

The report read, “Assuming a 20-percent pass-through effect of PMS prices to inflation, removing the PMS subsidy in January 2022 could cause the headline inflation rate to rise by an additional 2.0–2.5 percentage points over the following two years.”

The report disclosed that while the change in fuel prices will be visible to all Nigerians immediately, changes in wage rates, vehicle parts and maintenance, and other costs will be known only to a much smaller group of people.

Read also: World Bank criticizes CBN exchange policies, says it’s hindering investors

“In many countries, diesel dominates bus and freight transportation, but Nigeria’s history of diesel-price deregulation and the continuing PMS subsidy have encouraged the widespread use of PMS as an automotive fuel.

“As a result, service providers may take advantage of fuel-price increases to charge much more than the price increase itself would warrant,” the report read.

The report also cited an example of Bangladesh, where the government increased the prices of diesel by 11 percent in 2011 which translated into large trucking companies increasing their trucking fares by 22 percent while food transport companies announced that transportation prices would rise by 50 percent.

“The Nigerian authorities should be prepared for similar behaviour by domestic transportation companies following the removal of the PMS subsidy,” the report said.

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