While the naira has appreciated against the dollar in recent weeks to become the world’s best-performing currency, food inflation in the country jumped to a historic high last month.
Naira’s appreciation, driven by a series of measures taken by the Central Bank of Nigeria including the clearing of foreign exchange backlogs, has yet to reflect on the cost of imported goods in Africa’s most populous nation, according to the latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) on Monday.
Food inflation, which constitutes more than 50 percent of headline inflation, rose for the 15th straight time to 40.01 percent in March this year from 37.92 percent in the previous month.
The CPI, which measures changes in prices of goods and services, also show that March’s food inflation rate is 15.56 percent points higher compared to the rate of 24.45 percent in March last year.
Apart from food inflation, the headline inflation also quickened to 33.20 percent in March, up from 31.70 percent in February. Core inflation, which excludes the prices of volatile agricultural produce and energy, stood at 25.90 percent, up from 25.13 percent.
The top five contributors to the country’s inflation rate are food and non-alcoholic beverages, housing, water, electricity, gas and other fuel, clothing and footwear, transport, furnishings and household equipment and maintenance with 17.20 percent, 5.56 percent, 2.54 percent, 2.16 percent, and 1.67 percent.
“The cost of food in Nigeria experienced a substantial increase of 40.01 percent in March compared to the same period last year. This surge marks the highest level of food inflation on record, highlighting severe challenges in food affordability and accessibility,” analysts at Comercio Partners Research said in a note on Monday.
They said food inflation has averaged 13.26 percent since 1996, with the highest recorded increase of 40.01 percent in March 2024 and the lowest decrease of -17.50 percent in January 2000.
The rise in food inflation was caused by increases in prices of the following items such as garri, millet, akpu uncooked fermented (which are under the bread and cereals class), yam tuber, water yam (under potatoes, yam, and other tubers class) and dried fish sardine, according to the NBS.
Others are mudfish dried (under fish class), palm oil, vegetable oil (under oil and fat), beef feet, beef head, liver (under meat class), coconut, watermelon (under fruit class), Lipton tea and Bournvita, and Milo (under coffee, tea and cocoa class).
Ebunoluwa Adeleke, a Lagos-based mother of three, told BusinessDay that the rising prices of food items such as rice, oil, and pepper have made her reduce the quantity of food that she sells.
“My husband works on the island and he comes home only on weekends or at the end of the month. The little money we gather is what we use to pay school fees and feed. We have been eating well because I sell food but not as often as before, like twice in a day. Sometimes, I get the opportunity to clean people’s apartments in the evening and get paid. That’s another source of income,” she said.
Charis Edward, another Lagos-based trader, said the high price of food has become unbearable for his family.
“I sell different flavours of pap and groundnut. But I had to add a Point of Sale business because of my four children. I just gave birth to twins in January. My husband is a bus driver and most times, he doesn’t go to work because he wants to assist me with the twins. Most times, we eat once a day and because we can’t afford much and children might not take food to school,” she said.
Uchenna Uzo, professor of marketing and faculty director at Lagos Business School, said food prices at record high portray a gloomy picture for the economy because food is 60 percent of what an average consumer spends from whatever they earn.
“The rising food inflation will put more pressure on their pockets and reduce the amount of money they have to spend on other items that are available to them. So, it’s going to be a time of tighter monitoring, rationing, and where food businesses will have to reprioritise on their investment,” he added.
The liberalisation of the foreign exchange regime as part of measures to revive the economy led to a large devaluation of the naira. The currency measures are part of bold steps introduced by President Bola Tinubu after he took power in May to end the country’s years of economic stagnation.
The reforms, which included scrapping fuel subsidies, have sent inflation to a record high and fanned a cost-of-living crisis that’s caused severe hardship for ordinary Nigerians.
The naira’s collapse, after many years of having its level artificially supported by the central bank on the official market, contributed significantly to the high inflation. But recent weeks have seen the unit regain some of its poise.
The official exchange rate improved from N1,625.2/$ as of March 8, 2024, to N1,238.7/$ as of April 8. At the parallel market, the naira traded at around 1,250/$ as against 1,590/$.
Nigeria’s naira stands poised to continue its upward trajectory, building upon its status as the best-performing currency globally this month, according to a Goldman Sachs Group Inc.
Goldman economists, who predicted in February that the naira would strengthen to 1,200 per dollar during 2024, now see it potentially advancing beyond that level after a raft of measures by the central bank.
“This probably can run further; we would see an extension of the move to 1,000 and maybe even sub-1,000,” Goldman’s Andrew Matheny said in an interview. Since Goldman’s call in February, “six weeks have gone by and they’re continuing to hold the line, so that’s encouraging,” they said.
Bloomberg, an international news agency noted that after losing 43 percent of its value against the dollar in the first two-and-a-half months of the year because of a devaluation, Africa’s largest oil producer’s currency has strengthened 34 percent since mid-March, the most in the world among global currencies.
“Previous weakness in the naira, which is down by more than 60 percent year-on-year against the dollar, remains a key driver of rising inflation. Food inflation is continuing to surge, rising from 37.9 percent year-on-year to 40.0 percent year-on-year,” David Omojomolo, Africa economist at London-based Capital Economics, said.
He said the recent strengthening in the currency against the dollar comes too late to stop inflation’s march upwards. “We think inflation will peak just below 40 percent year-on-year around the end of Q2”.
The World Bank’s latest Nigeria Development Update report revealed that rising inflation and sluggish growth in Africa’s most populous nation increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.
Another recent report by the multilateral lender said Nigeria, Ethiopia, Malawi, Sierra Leone, and Zimbabwe are the countries that recorded the fastest rise in food inflation for February in Sub-Saharan Africa.
In a bid to reduce the country’s surging inflation rate, the CBN last month raised its monetary policy rate for the second straight time by 200 basis points to 24.75 percent in a bid to fight inflation.
The apex bank which increased the interest rate by 400 basis points to 22.75 percent in February is set to hold its next MPC meeting in May.
“While the naira has staged a recovery recently, extremely high inflation means the CBN will have little choice but to continue its hiking cycle. Given the CBN’s focus on rehabilitating its reputation and anchoring inflation expectations, it will take this data release as evidence of the need for more interest rate hikes. We expect another 200 basis points of interest rate hikes over the coming months, taking the policy rate to 26.75 percent,” Omojomolo said.
For countries with stubbornly high levels of inflation, the monetary policy stance should remain restrictive particularly in countries like Ethiopia, Malawi, Nigeria, Sierra Leone, and Zimbabwe, among others, according to the World Bank.
Last year, Tinubu declared an immediate state of emergency on food insecurity to tackle the increase in food prices. He unveiled a comprehensive intervention plan on food security, affordability, and sustainability, including an immediate release of fertilisers and grains to farmers and households to mitigate the effects of the subsidy removal.
In February, Abubakar Kyari, minister of agriculture and food security, expressed the readiness of the federal government to freely distribute a total of 42,000 metric tons of assorted grains to Nigerians, in response to the rising food crisis in the country.
He said efforts were ongoing to ramp up the production of food, adding that there were plans to incentivise farming activities in the country.
The Lagos State Government recently commenced the sales of essential food items at discounted prices across the state. Gbenga Omotosho, commissioner for information and strategy, said the markets will offer Lagos residents a 25 percent discount on staple food items like rice, beans, gari, bread, eggs, tomatoes, and pepper.
Paul Igbinoba, managing consultant at ProServe Options Consulting, recommended that state governments need to allocate a minimum of five to 10 percent of their monthly allocations from the Federation Account Allocation Committee in the next six months to fight the food crisis in close collaboration with the federal government.
“Secondly, food items should be bought in bulk and sold weekly all over the states at designated places at subsidised prices. Lastly, massive agricultural programmes should be embarked upon by all state governments, including southern state governments, which could, in the next six months, lead to a bumper harvest that will significantly bring down food prices,” he said.
An investment and finance analyst with the handle @rubybaba said on his social media platform X that the further rise in inflation is “a big headache for individuals, businesses, and policymakers”.
“Whatever gains achieved in the FX market are under threat as inflation rises. And this means that the CBN has to keep hiking interest rates,” he said.
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