The persistent pressure on food supply coupled with the recent hikes in prices of essential utilities such as petrol and electricity, and foreign exchange restriction on food imports could further push domestic consumer prices, otherwise known as inflation, higher in coming months.
According to analysts, petrol, power and food contribute a significant part of the inflation basket that could thus accelerate further.
“Looking ahead, we expect inflationary pressures to remain elevated to the upside. The recent ban preventing food importers from accessing foreign exchange is expected to put upward pressures on food prices in coming months,” Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, says.
Akinloye states that electricity tariffs recorded considerable increases at the beginning of September, and that the deregulation of the downstream oil and gas sector in the same month has led to upward pressure on the price of petrol.
Data from the August 2020 inflation report by the National Bureau of Statistics (NBS) released Tuesday showed that inflation rose month-on-month by 13.22 percent, marking the 12th-consecutive uptrend since September 2019 and the highest in 29 months.
The current inflation rate is 1.34 percentage points higher than the rate recorded in July 2020 (12.82%). The increase is driven by increases recorded across both the food sub-index and core sub-index.
Food inflation, which accounts for more than half of the inflation basket, rose to 16 percent in August 2020, the most since March 2018 when compared to 15.48 percent in July 2020. The rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats and vegetables.
Core inflation, which excludes the prices of volatile agricultural produce, stood at 10.52 percent in August 2020 when compared with 10.10 percent in July 2020.
According to the report, the biggest increases in the core sub-index basket were recorded in Passenger transport by air, Pharmaceutical products, Hospital & Medical services and Passenger transport by road.
Omotola Abimbola, a macro and fixed income analyst at Lagos-based Chapel Hill Denham said, the spike in food inflation can be attributed to an underwhelming harvest season, which has long been pointed out, due to delay in planting as a result of COVID-19 disruptions, delay in rainfall in Southern Nigeria, and recent incidents of flooding in northern Nigeria.
“Core inflation was driven by weak FX liquidity, increase in fuel prices and impacts of COVID-19 on supply chains,” Abimbola further added.
With inflation rate at 13.22 percent and unemployment rate at 27.1 percent, Nigeria now has a misery index of 40.32 percent, an indication that there is a mismatch between the cost of living and the earning capacity of people in Africa’s most populous country.
“Inflation now at 13.2 percent means that real disposable income and investment returns will continue to shrink, there will be higher cost of living for Nigerians, lower demand for goods & services, higher cost of doing business and negative impact on profitability margin,” Ayodeji Ebo, managing director at Lagos-based Afrinvest Securities Limited said. With the Central Bank of Nigeria’s (CBN) fifth Monetary Policy Committee meeting set to hold September 21, 2020, experts feel that the Apex bank might be in a difficult situation to hold, increase or decrease the interest rate.
‘The Central Bank is in a delicate situation between supporting growth and stabilizing prices.
The CBN alone cannot achieve both objectives in isolation. Considering the fact that the current inflation level (above 13 percent) is growth-retarding and outlook shows prices would uptrend, the committee may be forced to tighten policy rate at their next meeting,’ said Damilola Adewale, a Lagos-based economic analyst asked.
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