CEM INSIGHT, ECONOMY | Nigeria, like other nations of the world has been faced with unabating rise in inflation caused by multiple global and local factors. While it is now summarized as being caused by the invasion of Ukraine by Russia at the global level, it is also true that inflation in Nigeria has spanned over 4 years continuous rise driven by rise in food prices caused by disruption in food production in response to the activities of Boko Haram.
The situation was aggravated by the rise in energy prices following decreased supply of energy products such as diesel which was caused by the Russian – Ukraine war. The situation shots up industrial overhead raising prices of final products.
These scenarios have kept inflation rising up till June for over 22% making Nigeria one of the countries with the highest inflation rates in the world according to the recent report from the Nigerian Bureau of Statistics.
According to the report, Headline inflation rate in June 2023 rose to 22.79% relative to May 2023 headline inflation rate which was 22.41%, showing an increase of 0.38% points when compared to May 2023 headline inflation rate.
On a year-on-year basis, the Headline inflation rate was 4.19% points higher compared to the rate recorded in June 2022, which was 18.60%.
On a month-on-month basis, the Headline inflation rate in June 2023 was 2.13%, this was 0.19% points higher than the rate recorded in May 2023 (1.94%). This means that in June 2023, on average, the general price level was 0.19% higher relative to May 2023
One remarkable but expected factor to the rise in inflation is the contribution of food inflation to the headline inflation which stood at 11.81% signaling a higher food inflation in the coming months in the current situation of high cost of fuel.
The NBS report for June stated that Food inflation rate in June was 25.25% on a year-on-year basis, 4.65% points increase to the rate recorded in June 2022 (20.60%). The rise in Food inflation on a year-on-year basis was caused by increases in prices of Oil and fat, Bread and cereals, Fish, Potatoes, Yam and other tubers, Fruits, Meat, Vegetable, Milk, Cheese, and Eggs.
The monthly Food inflation rate in June 2023 was 2.40%, this was 0.21% points higher compared to the rate recorded in May 2023 (2.19%).
The average annual rate of Food inflation for the twelve months ending June 2023 over the previous twelve-month average was 24.03%, this was 5.41% points increase from the average annual rate of change recorded in June 2022 (18.62%).
The direct impact of fuel price alterations is often and severely felt in the prices of food which respond erratically. The recent 2 times jump in the price of petrol following the removal of subsidy by the government has expectedly resulted in hike in food prices across the country which will be captured in the next NBS report.
There is a situation at hand here; there is still suppressed production of both food items and industrial goods and still experiencing high cost of production. The sudden jump in fuel prices has affected cost of distribution and culminating in increased prices. In addition to this situation, the Federal government has announced plans to increase salaries of civil servants and embark on cash transfers which is expected to increase volume of money in circulation and increased consumption that will not meet increased production.
The result will be higher inflation and even a galloping one that may intensify and result in hyper-inflation. Government must exercise caution in the implementation of its palliative plan. Dishing out cash may be impressing, but it is not economically best in option in this kind of situation. Palliatives should be organized in form of transport vouchers, subsidies on other consumables and other energy or industrial products.
According to the June inflation report, Core inflation stood at 20.27% on a year-on-year basis; up by 4.53% when compared to the 15.75% recorded in June 2022. On a month-on-month basis, it was 1.74% a surprised reduction from 1.81% in May by 0.07%.
Urban inflation rate was 24.33%, 5.23% points higher than the 19.09% recorded in June 2022. On a month-on-month basis, the Urban inflation rate was 2.31% which was 0.21% points higher compared to May 2023 (2.09%).
The Rural inflation rate in June 2023 was 21.37% on a year-on-year basis; this was 3.25% points higher compared to the 18.13% recorded in June 2022. On a month-on-month basis, the Rural inflation rate in June 2023 was 1.96%, up by 0.16% points compared to May 2023 (1.80%).