Tuesday, June 28 2016 12:27PM /FBNQuest Research
Earlier this month the National Bureau of Statistics (NBS) released the latest report in its premium motor spirit (PMS) price watch series. It shows the average monthly prices for PMS (petrol/gasoline) paid by households across the country.
In May this averaged N150.3/litre (l) for the 36 states of the federation and the FCT, and so above the fixed upper price limit for the retail pump price of N145/l set the same month.
The average price of gasoline in May represented a 27% y/y increase from the corresponding period in 2015. Ebonyi had the highest price (N165/l).
According to the report, only twelve states had their pump price at N145/l, including Lagos and Abuja. This may be due to poor regulatory checks and sharp practices.
The May inflation report showed that transportation prices rose by 15.6% y/y, driven by the new upper price limit for retail sales. This component has a 6.5% weighting in the consumer price index.
The new pricing regime has reduced the incentive to smuggle Nigeria’s fuel across borders as the trade is now no longer very profitable.
Furthermore, the increase in price has also led to a reduction in consumption. Major marketers have stated that petrol sales have declined by 40% on the back of the new price.
The new fx policy brings a more market-oriented rate for the naira. The hike in the price of PMS announced in May was on the basis of an assumed exchange rate for importers of N285/US$.
We should float the distinct possibility that the new interbank fx rate moves south of this point and so brings a review of the upper limit for PMS, or, conceivably, deregulation.