Nigeria’s headline inflation rate accelerated to an 18-year high of 25.80% in August 2023 due to soaring food prices and foreign exchange.
According to the latest Consumer Price Index report released by the National Bureau of Statistics (NBS) on Friday, the inflation rate rose for the eighth consecutive month to 25.80% from 24.08% in the previous month.
Breaking down the data, food and non-alcoholic beverages contribute the most (13.36%), followed by residential water, electricity, gas, and other fuels (4.32%), clothing and footwear (1.97%), and transportation ( 1.68%), furniture, household equipment and maintenance (1.30%), and education (1.02%).
Others include health (0.78%), miscellaneous goods and services (0.43%), restaurants and hotels (0.31%), alcoholic beverages, tobacco and cola (0.28%), recreation and culture (0.18%), and communication (0.18%). ing.
Razia Khan, chief economist at Standard Chartered Bank of Nigeria, said much of the existing pressure on inflation was due to Nigeria’s monetary policy stance in the months leading up to this result and the continued depreciation of the naira in the parallel market. He said it was a thing.
“In our view, the inflation data only partially reflect the removal of subsidies.The only proven way to end currency depreciation in the parallel market is to tighten monetary policy and tighten the “Nigeria’s inflation rate speaks to that urgency,” Khan said.
The World Bank said in June that inflation had pushed an estimated more than 4 million Nigerians into poverty in the first five months of this year.
Analysts at CSL Stockbrokers in a recent note said that due to several factors including food shortages, rising energy costs, devaluation of multiple currencies and trade restrictions, Nigeria’s consumer price index will decline from February 2022 onwards. He said that it remains high.
The NBS report also revealed that food inflation, which accounts for 50% of inflation, rose to 29.34% in August, the highest level in 18 years, from 26.98% in July.
The food inflation rate was also 6.22 percentage points higher compared to the inflation rate recorded in August last year (23.12%).
“The year-on-year increase in food inflation was driven by higher prices of oils and fats, bread and cereals, fish, fruits, meat, vegetables, potatoes, yams and other tubers, milk, cheese and eggs,” the NBS said. .
Naturally, according to analysts at Cordros Securities, the rise in food prices is due to fundamental factors such as the pass-through effect on food prices from higher gasoline, motor and spirit prices, higher input costs and conflicts in the northern regions of the country. Due to certain factors, it remains as it is.
“In addition to the above, the closure of Niger Republic’s borders in early August put new pressure on the food basket amidst the slow season in food-producing states. As a result, the agricultural and processed food sub-baskets Significant pressure has developed,” they said in a note Friday.
Core inflation, which excludes volatile agricultural and energy prices, was 21.15% on a year-on-year basis in August, an increase of 4.03% compared to 17.12% in the same period in 2022.
Federal government reforms such as the removal of petrol subsidy and the devaluation of the naira implemented in the second quarter of this year have increased the cost of living for cash-strapped consumers.
With the removal of fuel subsidy, the price of petrol tripled from N184 to N617, forcing public transport such as buses, three-wheelers and motorcycles to increase fares.
On June 14, 2023, the Central Bank of Nigeria consolidated all foreign exchange markets into an investor and exporter window and reintroduced the would-be buyer, would-be seller model.
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As a result, the official exchange rate increased from 463.38 Naira/$ to 747.8 Naira/$ as of September 4th.
However, this reform only widened the spread between the official market rate and the parallel market rate, as the naira has depreciated by 61.4% against the dollar since floating.
On September 4th, the naira stood at $747.87 per dollar at the I&E window, up from $463.38 on June 13th. Meanwhile, in the parallel market, the naira fell 20.1% to $917 from $762 on September 4. June.
“Prominent among these factors are the depreciation of the naira, rising logistics costs, increasing money supply and cost-pushing factors. In July and August, the naira traded between 775 and 955 Naira/$ in the parallel market. ” analysts at Financial Derivatives Company Ltd., led by economist Bismarck Lewein, said in their latest economic update.
He added that the pass-through effect of currency depreciation to domestic prices remains strong. “Notable imports include wheat, sugar, rice, and dairy products.”
