ABSTRACT This study investigates the impact of fuel subsidy removal on the Consumer Price Index (CPI) in Nigeria, focusing on how changes in Premium Motor Spirit (PMS) pump prices and transportation costs influence consumer welfare. Using monthly data from January 2012 to September 2024, a Structural Vector Autoregressive (SVAR) model was developed to reflect the Nigerian economy’s reliance on petrol for transportation. The model incorporated three key variables: PMS pump price, transportation costs, and the CPI. Findings reveal that removing the fuel subsidy leads to increased petrol prices and transportation costs, which in turn elevate the cost of goods and services, thus driving up the CPI. A positive shock to PMS pump prices caused the CPI to rise from 0.1% in the short run to 0.7% in the long run, while a similar shock to transportation costs raised the CPI from 0.2% to 0.9%. Variance decomposition results show that PMS prices and transportation costs significantly influence welfare, with short-run contributions of 5% and 36%, and long-run contributions of 10% and 19%, respectively. The study recommends investment in public transport and renewable energy to cushion the effects of subsidy removal and promote long-term welfare stability.