Naira, petrol shortages push inflation to new 17-year high

Nigeria’s headline inflation rate rose in January 2023 to a fresh 17-year high after slowing down in December for the first time in 11 months.

Analysts have attributed the uptrend in the inflation rate to the petrol and cash shortages in Africa’s biggest economy.

According to data released by the National Bureau of Statistics (NBS) on Wednesday, the inflation rate quickened to 21.82 percent in January from 21.34 percent in the previous month and 15.60 percent a year earlier.

“The contributions of items on a class basis to the increase in the headline index are: bread and cereal (21.67 percent), actual and imputed rent (7.74 percent), potatoes, yam and tuber (6.06 percent), vegetable (5.44 percent), and meat (4.78 percent),” it said.

Analysts at Financial Derivatives Company Limited (FDC), led by economist Bismarck Rewane, said in their latest Economic Bulletin report that the fuel scarcity, the naira crunch, pre-election jitters, and their unintended consequences contributed to the rise in the inflation rate.

“Traditionally, seasonal factors and the post-festive income squeeze drive down prices at the beginning of the year. However, January 2023 is different because of more recent events like the naira crunch, the energy crisis and heightening transportation costs,” they said.

Africa’s most populous nation is being roiled by internal crises. Households and businesses are being whipsawed by a severe petrol scarcity that has lingered since November and a chronic shortage of cash occasioned by the naira redesign policy of the Central Bank of Nigeria (CBN).

Moses Ojo, a Lagos-based economic analyst, said the scarcity of the naira notes and petrol has intensified the challenges of citizens in the country.

“The cost of goods and services has gone up, making peoples’ disposable income difficult to meet their needs and this is going to affect them significantly,” he said.

The NBS said food inflation, which constitutes 50 percent of the inflation rate, was 24.32 percent in January, up from 23.75 percent in the previous month and 17.13 percent in January 2022.

It said the rise in food inflation was caused by increases in prices of bread and cereals, oil and fat, potatoes, yam and other tubers, fish, vegetable, fruits, meat, and food products.

Core inflation, which excludes the prices of volatile agricultural produce, stood at 19.16 percent in January, up from 18.49 percent in December.

BusinessDay had reported two weeks ago that the scarcity was crippling the sales of several businesses, most especially in the informal sector.

Read also: Nigeria’s inflation surges despite drop among Sub-Saharan African peers

Obinna Okereke, a Lagos-based barber, said the naira and petrol shortages have taken a toll on its business.

“Point of Sale operators in my area are charging an extra fee of N200 for N1,000, plus petrol is sold for N300 per litre at filling stations in my area,” he said.

In January, the CBN’s Monetary Policy Committee (MPC) further raised its benchmark interest rate by 100 basis points to 17.5 percent as a result of the surge in inflation.

“The latest CPI (consumer price index) print, and upside risks to inflation stemming from policy proposals of key candidates in the upcoming elections, could extend the central bank’s hawkish tilt to the next MPC meeting,” analysts at Capital Economics said.

Some analysts believe that the cash and petrol crises could affect the projected easing of the country’s inflation rate for 2023.

“We expect the inflation rate to remain elevated in Q1. Currency weakness, higher logistics costs, and election uncertainty will further put upward pressure on the price of food and non-food items,” FDC analysts said.