IMPACT OF FUEL SUBSIDY REMOVAL ON THE COST OF LIVING IN NIGERIA

Abstract

The removal of fuel subsidies has significantly exacerbated inflationary pressures in Nigeria. According to the National Bureau of Statistics (2024), Nigeria’s headline inflation rose from 28.9% in December 2023 to 29.9% in January 2024. It continued its upward trajectory, reaching 34.19% by June 2024, marking the seventh consecutive monthly increase and the highest level recorded in nearly two decades. This inflationary trend has been largely driven by rising fuel and food prices, coupled with currency depreciation, and has deepened the cost-of-living crisis. This study aims to simulate the impact of removing the petrol subsidy, as reflected in the increase in PMS prices, on Nigeria’s inflation trajectory. We hypothesize that the removal of petroleum subsidies does not generate inflationary pressures and test this hypothesis using the innovative Dynamic Simulated Autoregressive Distributed Lag (DS-ARDL) framework. The outcome of the study shows that fuel-subsidy removal has a significant impact on the cost of living and inflation level in Nigeria, indicating that as 1 unit of subsidy removal increases, the cost of living and inflation level increase by 73.8%. The government should therefore carefully consider the impact of removing fuel subsidies on citizens and provide palliatives and other welfare-enhancing initiatives to cushion the effect on individuals, households, and firms.