Nigeria’s high headline inflation in June 2024 is expected to moderate in July based on a number of factors such as the 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, analysts say.
This comes before the Nigerian Bureau of Statistics (NBS) releases the July inflation report on Thursday.
“Headline inflation will decelerate in July because of the high base effect from last year. Recall that last year, inflation picked up significantly around June/July largely due to the currency devaluation,” Tobi Ehinmosan, macroeconomic and fixed income analyst at FBNQuest Merchant Bank, said.
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“This high year-on-year inflation index from last year will impact this year’s figure, so there is an expectation to see a deceleration in July’s numbers.
“However, for the month-on-month, inflation may keep rising because price pressure is still dominant in the economy, including security and distribution challenges of agricultural products, high petrol prices, high transportation costs, and the exchange rate depreciated in July also,” he said.
He stated that inflation will keep decelerating in the near term unless the government implements a policy reform that will exert pressure on consumer prices, noting that the government’s 150 day-free import duty will have a positive pass-through effect on food items.
“We have also witnessed stability of the Naira in recent days. If this persists, it could also help fight inflation,” he said.
FBNQuest Capital Research analysts expect moderation in inflationary pressures in July, largely due to high base effects.
Read also: Policy group tasks FG to stabilise exchange rate, control inflation to revamp the economy
It said in its daily morning note released on August 13 that drivers of rising inflationary pressures include: insecurity, infrastructure deficits, and distribution challenges constraining domestic food supplies, continued exchange rate depreciation, elevated energy costs, and higher electricity tariffs.
The NBS June data revealed that Nigeria’s headline inflation sustained its upward trend to 34.19 percent – an increase from 33.95 percent in May.
Nigeria has been faced with its worst food crisis which plunged more people into insecurity, driving food inflation to 40.87 in June 2024, the highest on record, according to the NBS.
In recent weeks, the prices of tomatoes, pepper, Irish potato, yam, and garri are now declining in various markets across the country, bringing relief to households who can now afford to purchase their favorites without alternatives.
A BusinessDay survey revealed that a basket of tomatoes has declined in Lagos to N50,000 from an average of N120,000 in May/June 2024. A small basket of pepper has fallen to N13,000 from N35,000.
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.
In July, the Federal Government approved a 150-day duty-free window to allow the importation of maize, husked brown rice, and wheat as part of measures to combat rising food inflation across the country. The initiative was based on the implementation of the Presidential Accelerated and Stabilisation Advancement Plan.
Yemisi Adebayo, a research analyst at Coronation Merchant Bank, said inflation will begin to moderate in July but it will be marginal compared to inflation figures over time. Adebayo said the moderation can be attributed to relative stability in FX market.
She said the Central Bank of Nigeria (CBN) governor, Yemi Cardoso, has started intervening in the market, which has brought some level of stability. “We should expect the intervention by the CBN governor to ease the demand pressures in the market and provide short-term relief in the market.
“The President gave an order for the 150-day free import duty, which will encourage imports. We have been seeing some relative appreciation in the exchange rate. If the momentum is maintained, then it will translate to reduced prices,” Adebayo further said.
She stated that there will be reduced prices caused by the exchange rate stability, which will influence imported goods.
“Food inflation, which is the key driver of inflation, will moderate and we will see the impact on headline inflation. Inflation has maintained a downward trend month-on-month since February but it was interrupted in June by the Muslim festive period that occurred that month.
“In June, petrol prices were high, which pushed up inflation because demand was high,” she added.
Commercio Partners analysts said in their inflation report that food inflation, which is the main driver of inflation, is expected to taper off because of the short-term federal government’s recent interventions, with a N2 trillion package announced by Abubakar Kyari, minister for agriculture and food security, aiming to curb rising prices and speed up stabilisation and growth.
CardinalStone analysts said the government’s decision to suspend duties, tariffs and taxes on the importation of certain commodities such as maize, husked brown rice, wheat, and cowpeas for the next 150 days is expected to lead to lower food prices.
“The government’s plan to import 250,000 metric tons (MT) of wheat and 250,000 MT of maize will also bode well for the food price outlook, providing a positive counterbalance to the inflationary risks,” they said.
“Overall, we expect headline inflation to moderate by 50 basis points to 33.7 percent,” they added.
However, Financial Derivatives Company(FDC) analysts said in its economic bulletin released on August 9 that headline inflation will surge again in July to 34.26 percent.
“Our recent market survey reveals a further build-up in inflationary pressures by 0.07 percent to 34.26 percent as supply chain disruptions continue to take their toll on prices.
“The foreign exchange uncertainty and the supply bottlenecks together with an increase in the price of petrol (PMS) are culminating in a further rise in headline inflation. Food inflation is likely to inch up further to 40.98 percent despite the harvest season,” analysts at FDC stated.
“Core inflation is expected to move in the same direction as food inflation to 27.48 percent. The rise is supported by exchange volatility between N1304/$ and N1670/$ in July,” said FDC analysts.
