Nigeria’s headline inflation rose for the sixth consecutive time to 22.79 percent in June, largely fuelled by soaring food prices and petrol price hike, according to data released by the National Bureau of Statistics (NBS) on Monday.
The inflation rate in Africa’s biggest economy rose to a new 17-year high from 22.41 percent in the previous month, the NBS data show.
The federal government recently declared a state of emergency on food security and unveiled its plan for the sector.
President Bola Tinubu plans to deploy savings from the fuel subsidy removal into the agricultural sector, focusing on revamping the agricultural sector and also growing agriculture’s contribution to 70 percent in the long term.
In the immediate term, the government plans to release fertilisers and grains to farmers and households to mitigate the effects of the subsidy removal.
The government has mapped out 500,000 hectares of land that will be used to increase the availability of arable land for farming which will immediately impact food output.
“The increase in energy costs is beginning to reflect in the prices of transport and food, contributing to inflationary pressures and raising inflation expectations,” analysts at Financial Derivatives Company Limited, led by economist Bismarck Rewane, said in their latest economic bulletin.
Food prices are up 200 percent and the cost of petrol have jumped by 176 percent year to date, according to a BusinessDay’s findings, further robbing households of their spending power and inflicting more pain on them.
The food inflation, which hit 25.25 percent in June, is the key driver of Nigeria’s core inflation as over 90 percent of the country’s working population spends 60 percent of their income on food and related expenses, according to analysts.
The surge in inflation led to a 12 percent increase in household consumption expenditure to N27.3 trillion in the first half of 2022, the highest in five years, from N24.3 trillion in the corresponding period of 2021, according to the NBS.
The situation has made many Nigerians poorer than they were in 2021, with 63 percent of the population (133 million) said to be suffering from multidimensional poverty last year.
“I can’t even afford to eat properly again as food prices continue to surge. Once I can feed my children twice daily, I am satisfied,” Ronke Raji, a stylist at Ketu Market, said. “People are trying to cut down on their costs so they can survive the difficult moment. As part of the cost measures, ladies are wearing wigs now instead of making their hair. This is taking jobs away from us. So, how can I afford a balanced diet for my children or myself?”
FDC analysts said another factor driving inflation is “the ongoing exchange rate unification process, which has caused the official exchange rate to depreciate”. “Prices are now being adjusted to reflect the prevailing exchange rates,” they added.
KPMG Nigeria, in a flashnote, said the official inflation data for June 2023 “is even more surprising when you consider the other policy measures such as the adoption of the 7 percent VAT on imported diesel, the depreciation of the naira following the FX unification policy and the implementation of other aspects of the 2022 Fiscal Policy Act all introduced in the same month and all of which have the propensity to be inflationary”.
It said: “None of this is however showing in the June CPI data. One likely explanation might be a time lag between the policy and its inflationary impact but this is unlikely as the effects of the policy were immediate and very direct. Another possibility is the presence of another highly weighted component of the CPI that experienced a huge drop in price as to cancel out the increase from the PMS adjustments.
“However, every category increased but just marginally and largely in line with post PMS price adjustments. While diesel prices have dropped from on average N844 in May 2023 to N815 in June, this cannot explain the almost 200 percent rise in PMS prices that have little effect on inflation.”
According to the firm, the trend in PMS and diesel prices as well as trend in food inflation, transport inflation and energy, and other fuels inflation is therefore unexplainably out of sync with the trend in headline and month-on-month inflation in June 2023 as shown in the various charts below.
“While there is no clear explanation for the seemingly muted effect of the subsidy removal policy on inflation and there is no obvious explanations at this time to suggest a lag in policy effect; we will wait till the CPI is released for July 2023 to take a further review,” it said.
A breakdown of the NBS report shows that food and non-alcoholic beverages contributed most (11.81 percent) to the acceleration in the headline inflation, followed by housing, water, electricity, gas and other fuel (3.8 percent), clothing and footwear (1.74 percent) and transport (1.48 percent).
Others are furnishings, household equipment and maintenance (1.15 percent), education (0.90 percent), health (0.68 percent), miscellaneous goods and services (0.38 percent), restaurants and hotels (0.28 percent), alcoholic beverages, tobacco and kola (0.25 percent), and communication (0.15 percent).
The report also revealed that food inflation, which constitutes 50 percent of the inflation rate, rose to 25.25 percent in June from 24.82 percent in the previous month. The food inflation rate was also 4.65 percentage points higher compared to the rate recorded in June last year (20.60 percent).
“The rise in the food inflation on a year-on-year basis was caused by increases in prices of oil and fat, bread and cereals, fish, potatoes, yam and other tubers, fruits, meat, vegetable, milk, cheese and eggs,” the statistics bureau said.
The World Bank said at the launch of the Nigeria Development Update for June 2023 that the accelerating inflation in Africa’s biggest economy pushed an additional four million Nigerians into poverty in the first five months of 2023.
The multilateral lender said in a new report on Tuesday that the price increases resulting from the subsidy removal would have a one-time impact on prices, primarily affecting petrol purchases for transportation, power generation, and certain services.
“The removal of the petrol subsidy is anticipated to cause a temporary increase in inflation in the upcoming months before contributing to disinflation in the medium term. Headline inflation is expected to rise from 18.8 percent in 2022 to 25 percent in 2023.”
The World Bank, however, said that by the first quarter of 2024, the subsidy removal would start to have a disinflationary effect, meaning that it would alleviate inflationary pressures despite higher petrol prices.