Experts Sound Alarm: Electricity tariff increase could drive inflation

From a financial analyst angle, it is pertinent to emphasise the potential ramifications of the recent electricity tariff hike on Nigeria’s inflationary landscape, a matter of significant concern for both consumers and businesses alike

By Ken Ibenne

In March 2024, Nigeria witnessed a notable surge in inflation, reaching 33.2%, representing a 1.5%-point increase from the previous month. This uptick was largely attributed to elevated costs in food, beverages, and energy, alongside housing expenses.

Following this trend, the Federal Government, acting through the Nigerian Electricity Regulatory Commission (NERC), sanctioned a substantial increase in electricity rates for Band A consumers. This adjustment, announced by NERC’s Vice Chairman, Musliu Oseni, entails customers paying N225 per kilowatt hour, a significant escalation from the previous rate of N68.

Analysts, including myself, foresee potential inflationary pressures stemming from this tariff hike. In an exclusive interview with Nairametrics, we underscored the interconnectedness of inflation with broader economic dynamics, cautioning against the possibility of a spiral inflation scenario if left unchecked.

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Moreover, the Organised Private Sector in Nigeria has voiced apprehensions regarding the substantial tariff hike, warning of its potential to exacerbate inflation and precipitate the closure of over 65% of businesses in the country.

Given these concerns, proactive measures to stabilise prices and promote sustainable economic growth are imperative. Addressing the ripple effects of price increases on businesses and households is paramount, as heightened operating costs and product prices may erode consumer purchasing power and strain companies’ financial health.

As highlighted by The Paradise News, the latest data from the National Bureau of Statistics (NBS) underscores the gravity of the situation, with food inflation reaching 40.01% year-on-year in March 2024, reflecting a substantial increase from the previous year.

In navigating these challenges, policymakers and stakeholders must collaborate to mitigate the adverse impact of the electricity tariff hike on inflation and foster an environment conducive to economic stability and prosperity.