The rising prices of crude oil following the Russia-Ukraine conflict, coupled with exchange rate instability in Nigeria, have led to higher petroleum product prices across the country, prompting the Manufacturing Association of Nigeria (MAN) to warn Nigerians that higher inflation rates and a surge in the price of goods and services are inevitable as the cost of diesel rises.
Ibrahim Usman, Chairman, Infrastructure Committee, MAN, said the rise in inflation would be caused by a rise in production costs for manufacturers that rely heavily on diesel for production.
According to Usman, the increase in diesel prices affects the cost of manufacturing since most of us use diesel for production. Therefore, when production costs are high, manufactured goods will be sold at higher prices, so that the manufacturers can profit from the sale afterward and stay in business.
“So basically it will increase the inflation in the country which is already high, further compounding the problems and plight of Nigerians,” he said.
According to him, the government can prevent the expected consequences by providing electricity to manufacturers at a discount and by providing adequate power supply across the country.
An An economist and CEO of the Center for the Promotion of Private Enterprise, Dr Muda Yusuf, said that astronomical increases in diesel prices will lead to a concomitant increase in prices of several items, including food because trucks transport food.
Nigeria is paying for failing to encourage investment in the oil sector and having no operational refineries, said Yusuf, the former director-general of the Lagos Chamber of Commerce and Industry.
He explained that overall, prices will rise not just for finished goods, but also for food items since trucks that deliver food run on diesel.
“High diesel cost would trigger higher transportation costs. Most haulage vehicles are powered by diesel. Increase in transport costs typically impacts on general price level. A major driver of inflation is high transportation costs,” Yusuf added.
The economist noted that Nigeria’s finances will continue to be burdened by the rising price of oil caused by the Ukraine/Russia war, due to the payment of petrol subsidies that will reduce the country’s foreign exchange earnings.
In addition, Yusuf explained that factories having to use diesel generators because of the epileptic power supply was forcing them to increase prices or reduce profit margins.