Nigeria’s headline inflation rate accelerated for the fifth consecutive time to 22.41 percent in May, according to data by the National Bureau of Statistics (NBS) released yesterday.
Inflation rate in Africa’s biggest economy rose to a new 17-year high of 22.41 percent in May, 2023 from 22.22 percent in the previous month.
Analysts see a further acceleration in the country’s headline inflation in June owing to the recent naira devaluation and fuel subsidy removal.
“Looking at the movement, the May 2023 inflation rate showed an increase of 0.19 percent points when compared to April 2023 headline inflation rate,” it said.
It said similarly, on a year-on-year basis, the inflation rate was 4.70 percent points higher compared to the rate recorded in May 2022, which was (17.71 percent).
A breakdown of the NBS report show that food & non-alcoholic beverages contributed most to the acceleration in the headline inflation with (11.61 percent) followed by housing water, electricity gas & other fuel (3.75 percent), clothing & footwear (1.71 percent) and transport (1.46 percent).
Others are furnishings & household equipment & maintenance (1.13 percent), education, (0.88 percent), health (0.67 percent), miscellaneous goods & services (0.37 percent), restaurant & hotels (0.27 percent), alcoholic beverage, tobacco & kola (0.24 percent), recreation & culture (0.15 percent) and communication (0.15 percent).
The report also revealed that food inflation, which constitutes 50 percent of the inflation rate, rose to 24.82 percent in May from 24.61 percent in the previous month. The food inflation rate was also 5.33 percentage points higher compared to the rate recorded in May last year (19.50 percent).
“The rise in the food inflation on a year-on-year basis was caused by increases in prices of oil and fat, yam and other tubers, bread and cereals, fish, potatoes, fruits, meat, vegetable and spirit.
Core inflation, which excludes the prices of volatile agricultural produce, stood at 20.06 percent in May on a year-on-year basis, up by 5.16 percent when compared to the 14.90 percent recorded in May 2022.
The rate of increase in the level of inflation has become more rapid than in earlier months, analysts at Financial Derivatives Company Limited, led by economist Bismarck Rewane said in their latest economic bulletin.
“The major drivers of inflation during the month of May remain money supply growth (up 18.87 percent year-on-year), supply shortages (planting season effect) and exchange rate pass-through (depreciated 3.3 percent to N765/$),” they said.
Inflation in Africa’s biggest economy has been at the highest level in 17 years since July last year, eroding savings and incomes, and prompting the Central Bank of Nigeria (CBN) to hike the country’s benchmark interest rate, popularly known as Monetary Policy Rate (MPR) to their highest level in nearly two decades.
Last month, the CBN raised interest rates for the seventh consecutive time to 18.5 percent from 18 percent in March. Within a period of one year, the apex bank has increased MPR by 700 basis points from 11.5 percent in April 2022.
Damilola Adewale, a Lagos-based economic analyst, said despite the continuous hikes in interest rates, inflation keeps treading upwards.
“The Monetary Policy Committee (MPC) framework now seems ineffective in driving down food prices. And it is clear that the inflation we are seeing is more of a supply side issue than demand one,” he said.
He added that the MPC framework does not really speak to the supply side constraints. “It is more of a demand side approach which is a mismatch.”
According to FDC, the CBN has adopted orthodox and unorthodox measures to cool inflation in Nigeria, but to no avail.
Some analysts project that the inflation rate could surge further in June as a result of the recent reforms done by President Bola Tinubu in a bid to improve the economy.
Last month, Tinubu during his inaugural speech announced the removal of the petrol subsidy. Barely three hours after the speech, fuel prices across the country surged by an average of 174.6 percent from their then price a month ago.
Currently, fuel in Africa’s most populous nation is selling at an average of N526.7 per litre from an average of N191.8 per litre a month ago, according to BusinessDay’s calculation of NNPC’s new/old price list.
On Wednesday, the CBN collapsed all segments of foreign exchange markets into the Investors and Exporters (I&E) forex window.
It directed deposit money banks to remove the rate cap on the naira at the official I&E market, to allow for a free float of the national currency against the dollar and other global currencies.
“Importers of eligible items at the I&E window will now have to source FX at a higher rate and will likely push the associated increased costs to the end consumers resulting in increase in the price of goods and services, especially imported goods,” analysts at CSL Research, said in a recent report.
They said consumers still processing the impact of the removal of fuel subsidies will now have to deal with an additional increase in prices of goods and services associated with a depreciation of the currency.
“With the expected rise in inflation following this current depreciation, we expect a further tightening of the consumer purse leading to low demand,’ they added.
Last year, surging inflation pushed household consumption expenditure to the lowest in six years. Data from the NBS show that consumption recorded a negative real annual growth rate of household consumption expenditure of 4.07 percent, down from 25.65 percent in 2021.
A recent report by Phillips Consulting Limited said that over 90 percent of Nigerians aged 18 or older have experienced an increased cost of living, thus reducing their spending on essential and non-essential items.
“As living costs continue to rise, low-income households are disproportionately affected, with many being forced to cut back on essentials,” it said.
Last year, the World Bank said Nigeria’s accelerated inflation growth had eroded the N30, 000 minimum wage by 35.5 percent and widened the poverty net with an estimated five million people in 2022.