The inflation rate in Nigeria soared in July to its highest in nearly 18 years, with many Nigerians groaning under the weight of skyrocketing cost of everything from food to fuel and rent.
Data released by the National Bureau of Statistics (NBS) on Tuesday showed that the headline inflation rose for the seventh straight month to 24.08 percent from 22.79 percent in June.
Inflation pushed an estimated four million more Nigerians into poverty in the first five months of this year, the World Bank said in July.
The NBS’s latest consumer price index report shows that food and non-alcoholic beverages contributed the most (12.47 percent) to increase in the headline index, followed by housing water, electricity, gas and other fuel (4.03 percent), clothing and footwear (1.84 percent), transport (1.57 percent), furnishings and household equipment and maintenance (1.21 percent) and education (0.95 percent).
Others are health (0.72 percent), miscellaneous goods and services (0.40 percent), restaurants and hotels (0.29 percent), alcoholic beverages, tobacco and kola (0.26 percent), recreation and culture (0.17) and communication (0.16 percent).
“Nigeria’s inflation rate rose again to an almost 18-year high of 24.1 percent, as the removal of fuel subsidies and the devaluation of the naira continue to push up prices,” said David Omojomolo, Africa economist at London-based Capital Economics.
He said the fresh increase in inflation does not extinguish the firm’s concerns about the quality of the data, adding that the Central Bank of Nigeria (CBN) will need to respond with further monetary tightening.
Since May 29, when President Bola Tinubu announced the removal of the petrol subsidy, petrol prices have tripled to N617 per litre, while the value of the naira has plunged following the floating of the currency.
The floating of the naira has increased the official exchange rate from N463.38/$ to N744.41/$ as at Monday while the parallel market rate stood at N945/$.
“It is getting difficult daily for Nigerians, especially with the recent petrol subsidy removal and other reforms the Tinubu’s led-government has done,” Demola Balogun, a Lagos-based mechanic, said.
“They are good reforms but they are seriously hurting Nigerians and businesses. My family can’t even afford to eat thrice daily anymore as prices keep soaring,” he added.
Read also: Nigeria’s food inflation hit 26.9% in July
Mathias Ebie, a civil engineer with Hitech Construction Company, said he has introduced cost-cutting measures at home.
“I told my children that this is not the time for ice creams and meat pies, and eating out often. They are not happy, but I told them we need to save to ensure they go to school and that impressed them,” he said.
Food inflation, which constitutes 50 percent of the inflation rate, rose to 26.98 percent in July from 25.25 percent in the previous month. The food inflation rate was also 4.97 percentage points higher compared to the rate recorded in July last year (22.02 percent).
The rise in food inflation 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, according to the NBS.
Core inflation, which excludes the prices of volatile agricultural produce, stood at 20.47 percent in July on a year-on-year basis, up by 4.41 percent when compared to the 16.06 percent recorded in July 2022.
Israel Odubola, a Lagos-based research economist, said the country’s high inflation rate portends serious danger for the economy as all economic agents from households, businesses and investors will be affected.
“For households, it implies they are spending more to procure basic goods and services. This means that larger amounts would be allocated to non-discretionary expenditure, leaving them with fewer resources for savings or investments. It also increases the risk of worsening the poverty situation in Nigeria,” he added.
According to Odubola, persisting higher inflation increases operational expenditure for businesses and if cost is not properly managed, it could dampen their profitability.
“If you consider the current FX illiquidity situation, it makes doing business nightmarish,” he said.
The World Bank, in its latest Nigeria Development Update report, noted that the average prices of locally produced staples had increased faster than average inflation. “The loss of purchasing power increased the poverty headcount rate by an estimated two percentage points or four million people,” it said.
The multilateral lender added that in the immediate term, the removal of the petrol subsidy had caused an increase in prices, adversely affecting poor and economically insecure Nigerian households.
“The poor and economically insecure households will face an equivalent income loss of N5,700 per month, and without compensation, an additional 7.1 million people will be pushed into poverty.”
Last year, the country’s surging inflation pushed household consumption expenditure to the lowest in six years. Data from the NBS show that household consumption expenditure fell by 4.07 percent, compared to an increase of 25.65 percent in 2021.
High inflation means purchasing power will remain depressed over the medium term, according to Gbolahan Ologunro, portfolio manager at FBNQuest. “Since the onset of the COVID-19 pandemic, the standard of living or welfare of the average Nigerian has worsened,” he said.
Africa’s biggest economy has been grappling with double-digit annual inflation since 2016 but with a faster acceleration since last year.
This has eroded savings and incomes and prompted the CBN to hike the country’s benchmark interest rate, also known as Monetary Policy Rate (MPR), eight consecutive times in a bid to curb surging inflation in the country.
The apex bank has raised the MPR by 725 basis points from 11.5 percent in April 2022 to 18.75 percent in July this year.
“We expect inflation to edge towards 30 percent year-on-year in the coming months. Against that backdrop, the central bank will probably have to respond with further monetary tightening,” Omojomolo of Capital Economics said.
He said the worsening inflation backdrop will lead to an extra 275 basis points of hikes, to 21.50 percent, by year-end.
“But there’s a clear risk that policymakers continue to prioritise supporting economic growth over tackling inflation and deliver less tightening than we expect,” he added.