Nigeria’s headline inflation rate quickened to a new 18-year high of 25.80 percent in August 2023 owing to higher food prices and foreign exchange.
According to the latest Consumer Price Index report by National Bureau Statistics (NBS) on Friday, the inflation rate rose for the eighth straight month to 25.80 percent from 24.08 percent in the previous month.
A breakdown of the data shows that food and non-alcoholic beverages contributed the most (13.36 percent) followed by housing water, electricity, gas and other fuel (4.32 percent), clothing and footwear (1.97 percent), transport (1.68 percent), furnishings and household equipment and maintenance (1.30 percent) and education (1.02 percent).
Others are health (0.78 percent), miscellaneous goods and services (0.43 percent), restaurants and hotels (0.31 percent), alcoholic beverages, tobacco and kola (0.28 percent), recreation and culture (0.18 percent) and communication (0.18 percent).
Razia Khan, chief economist of Standard Chartered Bank of Nigeria, said much of the pre-existing pressure on the inflation figure came from Nigeria’s monetary policy stance in the months that preceded this outcome, and the continued naira depreciation on the parallel market.
“The inflation data in our view reflects only in part the lifting of the subsidy, and there is only one tried and tested way to end the depreciation on the parallel market: tighten monetary policy and allow price discovery on the official FX market. Nigeria’s inflation rate speaks to the urgency of doing so,” Khan said.
The World Bank said in June that inflation pushed an estimated four million more Nigerians into poverty in the first five months of this year.
Analysts at CSL Stockbrokers said in a recent note that since February 2022, Nigeria’s consumer price index has stayed elevated due to several factors such as food shortages, increases in energy cost, multiple currency devaluations, trade restrictions and a few others.
The NBS report also revealed that food inflation, which constitutes 50 percent of the inflation rate, rose to 29.34 percent in August, the highest in 18 years from 26.98 percent in July.
The food inflation rate was also 6.22 percentage points higher compared to the rate recorded in August last year (23.12 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, fruit, meat, vegetables and potatoes, yam and other tubers, milk, cheese and eggs,” the NBS said.
Unsurprisingly, food prices increased on the underlying factors such as the pass-through effect of elevated Petrol Motor Spirit prices on food prices, higher input costs and conflicts in the Northern region of the country – remain intact, according to analysts at Cordros Securities.
“Coupled with the above, the closure of the Niger Republic border in early August exerted fresh pressures on the food basket amid the lean season in food-producing states. Consequently, pressures were significant in the farm produce and processed food sub-baskets,” they said in a note on Friday.
Core inflation, which excludes the prices of volatile agricultural produce and energy, stood at 21.15 percent in August on a year-on-year basis, up by 4.03 percent when compared to the 17.12 percent recorded in the same period of 2022.
The Federal Government reforms such as the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, surged the cost of living of cash-strapped consumers.
The removal of the fuel subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.
On June 14, 2023, the Central Bank of Nigeria merged all foreign exchange markets into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
As a result, the official exchange rate increased from N463.38/$ to N747.8/$ as of September 4.
However, the reform has only widened the spread between the official and parallel market rates, as the naira has depreciated by 61.4 percent against the dollar since the float.
On September 4, the naira exchanged for 747.87 per dollar at the I&E window, up from 463.38/$ on June 13. Meanwhile, at the parallel market, the naira depreciated by 20.1 percent to 917/$ on September 4 from 762/$ in June.
“Prominent among these factors are naira depreciation, higher logistics costs, money supply growth and cost-push factors. In July and August, the naira swung between N775/$ and N955/$ at the parallel market,” analysts at Financial Derivatives Company Limited, led by economist Bismarck Rewane, said in their latest economic bulletin.
They added that the pass-through effect of a weak currency on domestic prices remains potent. “Notable among the commodities that have high import contents are wheat, sugar, rice and dairy products.”