Nigeria’s headline inflation rate accelerated for the eighth consecutive month in September to 20.77 percent as weak naira stoked a fresh spike in prices, according to the National Bureau of Statistics (NBS).
The NBS said Monday that the inflation rate, which is at a 17-year high, was 4.14 percent higher when compared to the 16.63 percent recorded in September 2021 on a year-on-year basis and 0.25 percent higher than the 20.5 percent recorded in August 2022.
It attributed the increase in inflation to the increase in import cost due to the persistent currency depreciation, the disruption in the supply of food products, and the general increase in production cost.
Since the outbreak of the COVID-19 pandemic, Nigeria, which depends largely on crude oil proceeds, has been grappling with weak foreign inflows, resulting in a liquidity challenge in the country’s foreign exchange market.
The Russia-Ukraine war, which started on February 24, has worsened the FX challenges facing Africa’s biggest economy. As of Monday, the naira-dollar exchange rate closed at N440/$1 at the official market, compared to N370/$1 in 2020.
At the parallel market, it closed at N740/$1 on Monday, compared to N368/$1 in 2020.
Nigeria depends heavily on imports for almost everything, and this has continued to put pressure on the country’s exchange rate as importers need dollars to import.
“We note that FX illiquidity will persist as foreign exchange inflows remain constrained by the dwindling crude oil production since crude oil constitutes 80 percent of the nation’s forex earnings,” analysts at CSL said in a note on Monday.
“More so, the persistent illiquidity coupled with the 118 percent debt service to revenue are disincentives to foreign capital inflows.”
The country spent $14.5 billion on imports in the first six months of this year, up from $10.04 billion in the same period of 2021, according to the Central Bank of Nigeria’s data on sectoral utilisation for transactions valid for forex.
Read also: Nigeria’s inflation rises for eighth straight month, hits 20.77%
“We still do not grow enough to feed our fast-rising population; so we still need to import to augment the shortfall,” said Victor Olowe, a professor and agronomist at the Institute of Food Security, Environmental Resources and Agricultural Research.
“We need to address issues of insecurity in the country to produce more of the crops we have a comparative advantage, so our food trade balance can be surplus and not the deficit we have currently,” Olowe said.
The NBS said food inflation also accelerated for the seventh straight month by 23.34 percent, caused by increases in prices of bread and cereals, food products, potatoes, yam, and other tubers, as well as oil and fats.
Analysts say the headline inflation and food inflation would go even higher next month as floods have ravaged farmlands in key agricultural-producing states.
The floods, which have destroyed 70,566 hectares of farmland, damaged 45,249 houses and displaced over 1.4 million Nigerians with about 500 persons reported dead, according to the Ministry of Humanitarian Affairs, have sent prices of key food items on an upward trajectory, especially in communities affected by the floods.
“The ongoing flooding has added to the problems of the food system, thus reducing food availability,” Kabiru Ibrahim, national president of the All Farmers Association of Nigeria, told BusinessDay.
“We are going to see another surge in food prices and hunger as we currently do not have anything in our reserves that would have served as a buffer to cushion the effect that would come from the shortfall,” he said.
Core inflation, which excludes the prices of volatile agricultural produce, stood at 17.60 percent in September 2022 on a year-on-year basis, up by 3.86 percent when compared to the 13.74 percent recorded in September 2021.
Analysts at London-based Capital Economics said the rise in Nigeria’s headline inflation rate to a 17-year high of 20.8 percent year-on-year last month reinforced their view that policymakers would raise the benchmark interest rate by a further 100 basis points to 16.50 percent in November.
“Looking ahead, we expect inflation to remain around these rates for a few months before falling back – and there are large upside risks. Recent flooding could prevent food inflation from dropping back,” they said in a report.
