Inflation slows to 33.40% on lower food prices

Nigeria’s headline inflation has slowed for the first time in almost two years due to lower food prices driven mainly by harvest and base effect.

According to the National Bureau of Statistics (NBS), the Consumer’s Price Index declined to 33.40 percent in July 2024 from 34.19 percent in June 2024. On a month-on-month basis, headline inflation also slowed to 2.28 percent in July 2024 from 2.31 percent in June 2024.

Analysts had earlier forecast Nigeria’s high headline inflation to moderate in July based on high base effect from last year, the federal government’s 150 day-free import duty effect on food inflation, and the stability of the Naira in recent days.

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Tobi Ehinmosan, macroeconomic and fixed income analyst at FBNQuest Merchant Bank, said the ease in inflationary pressure implies that the rate of price has slowed down.

“The prices of food items in the market have reduced compared to previous months,” he stated, noting that this might not really be felt by the average Nigerian immediately as prices had skyrocketed so high.

Food inflation, a significant driver of overall inflation, declined to 39.53 percent in July, down from 40.87 percent in June.

Analysts at CardinalStone also stated that Nigeria’s headline inflation moderated on the back of lower food prices.

“The July CPI data indicated that headline inflation has slowed, with headline inflation printing at 33.40 percent, lower than our estimate of 33.70 percent. The result was skewed to the food basket, which eased 134 basis points to 39.53 percent year-on-year, while the core basket inched up slightly by 6bps to 24.47 percent,” they said.

Prior to the release of inflation figures by the NBS, BusinessDay’s survey of food prices in the market had revealed that there were reductions in the prices of tomatoes. A basket of tomatoes dropped to N50,000in August from an average of N120,000 in May/June 2024. A small basket of pepper fell to N13,000 from N35,000 in May/June.

The price of a ‘plastic paint’ of garri has declined to N3,500 from N4,000 while a paint plastic of Irish potato declined to N4,000 from N12,000 during the period.

The prices of tomatoes, pepper, Irish potato, yam, and garri are now declining in various markets across the country, bringing relief to households.

However, Commercio Partners analysts said while the recent moderation in headline inflation offers some hope, the situation remains complex and fraught with risks.

“The impending minimum wage adjustment, for instance, could add to inflationary pressures if not carefully managed. Also, the rise in core inflation indicates that underlying inflationary pressures have persisted.”

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Core inflation, which excludes volatile agricultural produce and energy prices, stood at 27.47 percent in July, up from 27.40 percent in June 2024. Month-on-month, the core inflation rate rose to 2.16 percent in July 2024 from 2.06 percent in June 2024, marking a 0.10 percent increase.

Many economists say the CBN’s interest rate hikes have succeeded in slowing inflation and the apex bank should continue to maintain its stance.

This year’s Monetary Policy Committee (MPC) has raised the interest rate by 750 basis points to 26.75 percent to fight stubbornly high inflation.

“We expect the CBN to maintain its current monetary policy stance at its next meeting, given that the significant rate hikes have already tightened monetary conditions considerably. However, the potential for further rate hikes cannot be ruled out if inflationary pressures persist,” Commercio Partners analysts said.

Ehinmosan, earlier quoted, said that the improved inflation bodes well for the MPC policy decision, hence the MPC may put a brake on its rate hike cycle.

“This could breathe a sigh of relief to business owners, as borrowing costs would not be raised higher. However, it is premature to know if MPC would cut rates when it meets next month,” he said.

Northern Nigeria has continued to witness higher prices, especially on food as insecurity pushes farmers off their farms.

“All Items inflation rate on a Year-on-Year basis was highest in Bauchi (46.04%), Jigawa (40.77%), and Kebbi (37.47%) while Benue (27.28%), Delta (28.06%) and Borno (28.33%) recorded the slowest rise in headline inflation on Year-on-Year basis,” the NBS said.

“On a Month-on-Month basis, however, July 2024 recorded the highest increases in Abuja (3.91%), Borno (3.84%), Enugu (3.76%), while Taraba (0.17%), Kwara (0.62%) and Ondo (0.91%) recorded the slowest rise on Month-on-Month inflation,” it added.

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The challenge that insecurity poses has primarily manifested at dining tables and driven people in the North to the streets, which has complicated Nigeria’s already fragile security situation, SB Morgen said in a report.

“While hunger and economic woes affect the entire country, they are significantly more severe in the North,” the report stated.