Nigeria’s inflation rose to a 17-month high in October as sustained food shortage amid growing demand, coupled with its resultant effects, pressured consumer prices higher.
The measure of composite changes in the prices of consumer goods and services increased by 11.61 percent in October from a year earlier compared with 11.24 percent in September, the National Bureau of Statistics (NBS) said on Monday.
This is the highest October inflation since 2008, and the same inflation rate recorded by Nigeria in May 2018 when the Central Bank of Nigeria (CBN) kept the country’s interest rate at a record 14 percent to tame the macroeconomic variable.
“The factors driving inflation remain supply shocks with underlying cost push pressures,” the Economic Think Tank at Financial Derivatives Company (FDC) said in a recent economic bulletin sent to clients. “The impact of the border closure was further exacerbated by unusual heavy rainfall in October, which had a negative impact on harvest.”
The food subindex, which accounts for more than half of the inflation basket, increased by 14.09 percent on a year-on-year basis in October from 13.51 percent recorded in the previous month, while the index that measures inflation of all items excluding farm produce – core inflation – decelerated by 8.88 percent in the review month driven by sustained stability in foreign exchange rate and fuel prices.
Nigeria recently closed its land borders against importation and exportation of goods to the end of January 2020 in a bid to curtail smuggling of rice and other commodities, a move that has cut the supply of essential food items for a country that relies on importation to meet its rising demand.
“The closure of the borders was met with considerable apprehension,” the FDC Economic Think Tank said. That “resulted in shortages of smuggled commodities especially rice, turkey, chicken, and baking margarine”.
Domestic demand for rice – one of Nigeria’s major staple foods which accounts for about 9 percent of the country’s inflation basket – began to outstrip local production in the late 1970s, according to a geopolitical and socio-economic research firm, SBM Intelligence.
While the trend was reversed in the late 1980s, domestic demand for rice continued to surpass supply despite appreciable growth in domestic production, no thanks to Nigeria’s rising annual population growth rate estimated at 2.6 percent.
“The issue with rice in Nigeria is not that domestic production has not grown,” SBM said. “It is simply that domestic consumption has continued to outgrow it. What is needed is to improve productivity and build the infrastructure to reduce wastage and cost to consumers.”
According to KPMG, a global professional services company, only about 57 percent of the 6.7 million metric tonnes of rice consumed in the country annually is locally produced, leading to a supply deficit of about 3 million metric tonnes.
These supply gaps, which were bridged through illegal importation of the commodity, are gradually resurfacing following the government’s decision to completely restrict trade across its land borders, pushing food prices across the major food classes, such as bread and cereals, fish, meat, potatoes, yam and other tubers, vegetables, as well as oils and fats in September, according to NBS.
The urban year-on-year inflation rate stood at 12.20 percent in October 2019 from 11.78 percent recorded in September 2019, while the rural inflation rate was recorded at 11.07 percent in October 2019 from 10.77 percent in September 2019.
Inflation was highest in Kebbi, Bauchi, and Ondo States which recorded average price increases of 15.20 percent, 13.97 percent and 13.74 percent, respectively.
On the flipside, Kwara, Katsina and Bayelsa were states with the lowest inflation figures with corresponding increases of 9.69 percent, 9.29 percent, and 9.07 percent for the review month.
Meanwhile, analysts at United Capital have forecast continuous upticks in inflation rate in coming months as the festive season draws nearer, and on continued closure of the border in November.
“Elevated demand relative to supply due to the restriction of goods across all land borders will mount further pressure on prices,” the analysts at United Capital projected. “We expect pressures on the core inflation sub-index to remain tepid, as the CBN continues to support the naira and PMS prices stay averagely stable.”
OLUWASEGUN OLAKOYENIKAN
