Floods: Nigeria’s inflation seen surging after three months of easing

After three months of slower growth, Nigeria’s headline inflation rate looks set to surge on the back of the floods that ravaged many parts of the country, analysts have said.

BusinessDay analysis of the Consumer Price Index report for October 2022 published by the National Bureau of Statistics (NBS) on Tuesday showed that on a month-on-month basis, the inflation rate for October was 1.24 percent, 0.53 percent lower than 1.77 percent in August.

But on a year-on-year basis, it rose by 5.09 percent points to 21.09 percent in October from 15.99 percent in the same period last year.

The NBS report attributed the monthly decline to the present harvesting season.

“Over the past three months, there has been a decline in headline inflation on a month-on-month basis due to a decline in the changes in the food index relative to the reference month index,” it said.
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Food inflation, which constitutes 50 percent of the inflation rate, also recorded a monthly decline of 1.23 percent in October, a 0.82 percent drop from 2.05 percent in June.

The food inflation rose to 23.72 percent year-on-year in October from 23.34 percent in the previous month.

“We have had elevated price levels in the first half of this year and because they are high base levels, the increases have begun to decelerate,” Ibrahim Tajudeen, director of research and strategy at Chapel Hill Denham, said.

He said the deceleration of prices will begin to accelerate in the coming months due to the impact of the recent floods.

In a recent report, analysts at Financial Derivatives Company (FDC) said typically, headline inflation and food inflation taper from September to November every year, reflecting the core harvests that occur in the period.

“However, the recent floods in the major food-producing states will rob the country of the price moderation effects of the harvest season,” they added.

This year’s flood incidents, which started in September, have destroyed 70,566 hectares of farmland, damaged 45,249 houses and displaced over 1.4 million Nigerians, with about 600 persons reported dead.

The floods, described as the worst in a decade, have been attributed to the release of water from the Cameroonian Lagdo dam, which affected Nigeria because of its lack of flood defence mechanism. The Dasin Hausa Dam, which should have been built 40 years ago, would have been able to cushion the effect of whatever came from Lagdo.

Data from the United Nations Office for the Coordination of Humanitarian Affair, World Food Programme, and Telimer Research show that Nigeria has the largest number of people (3,480) hit by flooding among 19 African countries.

A large part of this year’s harvest was lost to the worst floods in Nigerian history for more than a decade, said Ikemesit Effiong, head of research at SBM Intelligence.

“The effect of those losses will begin to be felt as the Christmas holiday season enters its high season. Nigeria will set a few more inflation records till at least the first half of 2023,” Effiong said.

David Ibidapo, head of market data and research at AFEX Commodities Exchange, said the country would only start seeing the effects of the floods in December or January 2023, because processors or big buyers of commodities who typically come to the markets will see low supply.

A recent SBM Intelligence survey showed that consumers are struggling to survive with dwindling incomes and rising costs of food items.

One of the interviewees, a Port Harcourt-based 39-year-old, said all he could think about was how to leave the country, even to neighbouring African countries, because he could no longer cope with the rising cost of food.

Another interviewee from Lagos complained that she was running out of ideas to cope with the increasing food cost as she had to choose between travelling back to her town and struggling to make ends meet.

“Consumers will further ration their finances because the prices of things are just skyrocketing. And it is not as if compensation or salaries have grown in proportion,” said Damilola Adewale, a Lagos-based economic analyst.

According to the NBS, the compensation of employees (wages and salaries) fell to 3.93 percent in the second quarter of 2022, the slowest growth since Q3 2020, from 6.48 percent in the previous quarter.