Nigerians are paying more for the products and services they enjoy than they did some 17 years ago. This is due to a spike in inflation in the last 7 months, bringing headline inflation to 20.52 percent as at August 2022. It is however worrisome that this trend will persist, at least in the short term, according to financial experts. Meanwhile, the rate of increase is expected to slow down in the months ahead. BAMIDELE FAMOOFO reports.
Cost of living is rising daily in Nigeria and life is becoming more difficult for the people. The reason for this is not farfetched; the Consumer Price Index, which measures inflation, has risen consistently in the last seven months. According to the National Bureau of Statistics, headline inflation increased to 20.52 percent in August, 2022, sustaining its double digit trend for more than two decades.
Perhaps the most unpleasant news for consumers is the assertion by financial experts that inflation will continue to rise at least in the short term, albeit slowly.
In its post-inflation review report in September, Financial Derivatives Company Limited noted that Nigeria and a few other African countries like Uganda and Ghana did not respond to drop in the global food price due to some other factors hampering economic growth.
In Nigeria, currency pressures, disruption in the supply chain and numerous structural challenges like insecurity are affecting productivity.
“Nigeria and other African economies may record a lower inflation rate in the coming months. However, inflation is not only affected by global price movement but also volatility of currency. Currency volatility may hinder the effect of lower global commodity prices,” FDC noted.
On their parts, experts at Cordros Research, said inflation will rise to 21.18 percent in September, rising 1.7 percent month-on-month as a result of the unfavourable base effect in the corresponding period of 2021. Their prediction was hinged on the lingering currency and energy pressures, spillover impact of rising transport cost.
Bismarck Rewane, Managing Director and Chief Executive Officer and his team of analysts at FDC Ltd, warned that inflation may further be driven higher by the decision of the Federal Government to increase wages and the opening of elections campaigns in the country.
“The risk to this trend remains with the likely passage of the current wage review of public lecturers. And the money supply will increase coupled with the release of funds for election campaigns. The increased liquidity will cause a demand pull effect which could compound inflationary pressure. Although, harvest season might increase output, which could have a further positive effect on the food basket,” FDC said.
Meanwhile, it is the expectation of experts that the next Monetary Policy Committee meeting of the Central Bank of Nigeria will pay attention to curbing the rising trend of inflation by retaining interest rate at its current position. “This should be a focal consideration at the next monetary policy committee meeting and increase the probability of leaving the interest rate stance unchanged,” FDC proposed.
Johnson Chukwu, Chief Executive Officer, Cowry Asset Management Limited, on the contrary, proposed a hike in interest rate to help curb rise in inflation.
His words: “Ahead of the next MPC meeting later this month, we see a marginal rate hike by 75bps in a bid to rein in inflation.”
“Perhaps the most unpleasant news for consumers is the assertion by financial experts that inflation will continue to rise at least in the short term, albeit slowly”
Cowry Asset predicts that inflation will increase to 20.9 percent in September as against 21.18 percent by Cordros Research.
The CBN, at its last meeting in July, the monetary policy committee raised the policy rate by 100bps to 14 percent, taking the total rate raised by the MPC this year to 250bps.
However, reacting to the inflation outcome, Chairman, Chartered Institute of Bankers of Nigeria, Abuja Branch, Uche Uwaleke, said the increase in headline inflation above the psychological threshold of 20 per cent did not come as a surprise in view of the rising inflation trend in many economies partly caused by the Russian Ukrainian conflict.
It’s interesting to note that the NBS, in its latest CPI report, said the NBS also provided a clue as to the major factors driving the inflationary pressure in Nigeria namely supply disruptions and the rising cost of production.
Uwaleke said “In the light of this revelation, what becomes clear is that the recent monetary policy tightening stance of the CBN alone may not address the challenge.
“The government needs to formulate and implement complementary fiscal policies aimed at boosting food supply as well as reducing firm’s cost of production.”
Also commenting on the development, the Chief Executive Officer, Eczellon Capital, Diekola Onaolapo cited domestic constraints.
He said: “The figures should surprise anyone; it is tragic that things are going this way. However, our inflation is often imported, and given the trajectory of the foreign exchange rate over the past few months has been. It is not a good development but not surprising.”
He added: “Considering inflation measures and changes in pricing from period to period, you’ll expect that after a while, it begins to taper off but the year-on-year comparison is going to continue but month-on-month would begin to taper off at some point.”
On his part, the Head, Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi said: “I don’t think the figures are actually surprising given what we’re seeing globally and also with the country, I’m sure nobody is surprised by what we are seeing. Also, the exchange rates played a part because we largely import.”
“For the rest of the year, we think there would actually be an increase. The momentum will actually continue however, there will be a slowdown and the rate of increase is going to reduce. For us, we are projecting that the average inflation for the year would not exceed 19 per cent. The rate increase is going to reduce. It is going to increase at a decelerating rate.”
The inflation figures came just as the Director, Corporate Communication Department, Central Bank of Nigeria, Osita Nwanisobi, also expressed concern that the attitude of Nigerians towards foreign goods and services was one of the major challenges affecting the nation’s economy.
The CBN director spoke on Thursday during an enlightenment fair organised by the CBN for business operators, banks, farmers, cooperative societies, NYSC members and workers of various establishments, held in Port Harcourt, Rivers State.
Nwanisobi, who was represented by the Deputy Director, Corporate Communication Department, Central Bank of Nigeria, Samuel Okogbue, said the Enlightenment Fair would educate the participants on their various business activities that affect the economy.
“CBN is about the economy and the economy is about the people. We are here to interact with you about the economy as to be conscious of what you are doing that impacts on the economy.
“The essence of our coming here is not only to tell you what CBN is doing. We also want to appreciate you, to think with you about our economy so that we will be conscious of what we are doing and how your businesses and other activities impact on our economy.
“In the last 15 years we have passed through many problems such as economic recession, COVID-19 which have impacted on the economy. We are battling with insecurity, oil theft and the urge for foreign goods which affects the nation’s Gross Domestic Product, GDP.
“We consume foreign goods, everything we consume is foreign based and all this affects the foreign exchange rates. Our attitude to foreign goods is affecting our economy. This enlightenment fair will educate you on consumer protection, currency operations, payment management system, development finance and eNaira,” he said.
In his remarks, the CBN Port Harcourt branch Controller, Maxwell Okafor, said the fair was aimed at disclosing the activities of CBN to the participants and what is required of them to secure their businesses and operate a free market economy.
Also, the CBN Assistant Director, Consumer Protection Department, Damola Atanda; Chika Ugwueze, CBN Assistant Director, Payment System, and Stanley Oruyeigha, Head Development Finance Department, enlightened participants on issues concerning consumer protection, payment system and development finance.
One of the participants and programme manager, Rivers State Agricultural Development Programme, Vitalis Chindah, commended the CBN for their interventions in the area of agriculture product in the state and across the nation.
He urged the CBN to do more in encouraging the many yearning farmers who need finance to upgrade their business.
August inflation in retrospect
Principal commodities that drove the price level in August included bread, cereal, yam, meat and oil. A further look at the numbers reveals a slight deceleration in the monthly food basket to 1.98 percent. Not surprisingly, this is partially due to the harvest seasonality effect. The increased output of farm produce, especially cash crops must have played a major role in price moderation. Also evident was the impact of imported inflation arising partly from a weaker naira in the forex market. The prices of imported food items like flour have increased by 10.42 percent. Core inflation, which is inflation less farm produce and energy, surged by 0.94 percent to 17.20 percent.
Whenever there is an increase in core inflation just like in the US this month, it is indicative of a much more structural cause of inflation rather than transient or temporary price increase. Whilst most of the sub-indices increased in tandem with the headline inflation rate, month-on-month inflation reduced slightly to 1.77 percent. The YTD increase in inflation is 17.07 percent.
Once again, Nigeria inflation moved in the same direction as some other countries. In August, inflation increased in Ghana to 33.9 percent and in Uganda to 9 percent. The global food price index declined for the fifth consecutive month by 1.99 percent to 139 points in August.
“Ahead of the next MPC meeting later this month, we see a marginal rate hike by 75bps in a bid to rein in inflation”
Global inflation keeps easing
Report showed that the US inflation rate had slowed by 0.2 percent to 8.3 percent in August but still close to a four-decade high. This is coming at a period when the projected expectation was 6.7 percent. But, the fright of continuous increase in the inflationary pressures is somewhat subdued.
In August, the price of gasoline sharply declined in the US to $3.71 per gallon down by 26 percent from its peak in June. Despite the sharp decline in gasoline price, broad price pressures have remained resilient in the US. This made the Federal Reserve to keep raising interest rates to fight inflation. As the world’s largest economy (25% of GDP), any signal of slowing inflation could indicate an improvement in global inflation. In the UK inflation rate slowed in August by 0.2 percent to 9.9 percent. Although, high inflation still takes its toll on consumption and investment in the country. The Bank of England in August projected the country’s economy would enter a recession at year-end.
Also, the moderate decline in global inflation could cause advanced and African economies to leave interest rates unchanged. This would lead to increased economic activities and eventually improve output and growth.
Inflation breakdown
Food sub-index Food inflation (year-on-year) increased by 1.1 percent to 23.12 percent in August. However, month-on-month food inflation declined marginally by 0.06 percent to 1.98 percent in August, as a result of the commencement of the harvest season.
Core sub-index Core inflation, which is inflation less seasonality, continued its upward trend to17.20 percent from 16.26 percent in July. Conversely, month-on-month core inflation declined to 1.59 percent in August. The core inflation rate is currently above the primary t/bills rate of 8.5 percent. This implies a negative real rate of return. Urban-Rural inflation both increased Inflation increased in the urban sub-index and slowed in the rural sub-index in August. Rural inflation rose by 0.90 percent to 20.12 percent (year-on-year), while it declined to 1.75 percent (compared to 1.82% in July) on a monthly basis. Also, the annual urban sub-index slowed by 0.86 percent to 20.95 percent while the monthly sub-index slowed slightly by 0.03 percent to 1.79 percent. However, the rate of decline in urban inflation was steeper than rural inflation in August. This is due to a decline in the price of diesel that has aided the supply to urban cities.
State-by-state analysis
All the states recorded an ease in inflation. Kwara, Ebonyi and Rivers states are the top three states with the highest inflation rate. Whilst Jigawa, Zamfara and Oyo states take the position of states with lowest inflation, Kwara recorded the highest inflation rate in August (30.80%), followed by Ebonyi (28.06%) and Rivers (27.64%). The states with the lowest inflation rates are predominantly in the Northern part of Nigeria: Jigawa (17.77%), Zamfara (18.79%) and Oyo (19.80%). These states are benefiting from the increase in output due to harvest season.
Sub-Saharan Africa
Except Nigeria and Uganda, most of the Sub-Saharan African countries adopted an accommodative stance. Irrespective of the policy decision, it was observed that most of the Sub-Saharan African countries reviewed recorded an increase in the inflation rate. As such, the effect of the decline in the global food prices is not yet felt. This is due to currency pressures, disruption in the supply chain and numerous structural challenges affecting productivity in individual countries.
