Nigeria’s annual inflation rate rose to 24.08 percent in July, the highest in 18 years, driven by higher prices of food items, and increased transport fares, reflecting the increasing struggle of households to meet daily feeding needs, worsened by the impact of fuel subsidy removal and continued depreciation of the naira.
The higher inflation rate, which represents 1.29 percentage points from 22.79 percent in June, was caused by increases in prices of basic food items, including oil and fat, bread and cereals, fish, potatoes, yam and other tubers, fruits, meat, vegetables, milk, cheese, and eggs.
As a result, food inflation rose to 26.98 percent, the highest level in 18 years, since September 2005.
Also reflecting the impact of fuel subsidy removal on the cost of transportation and related services, core inflation (all items less farm produce and energy), rose to 20.47 percent in July, the highest in 19 years, up by 0.41 percentage points from 20.06 percent in June.
Disclosing this in its Consumer Price Index report for August, the National Bureau of Statistics, said that increases in prices of food and non-alcoholic beverages were responsible for most (12.47 percent) of the rise in the headline inflation rate to 24.08 percent in July, followed by housing water, electricity, gas & other fuel (4.03 percent); clothing and footwear (1.84 percent); transport (1.57 percent); furnishings, household equipment and maintenance (1.21 percent).
The NBS said: “In July 2023, the headline inflation rate rose to 24.08% relative to the June 2023 headline inflation rate which was 22.79%.
“Looking at the movement, the July 2023 headline inflation rate showed an increase of 1.29% points when compared to the June 2023 headline inflation rate.
“On a year-on-year basis, the headline inflation rate was 4.44% points higher compared to the rate recorded in July 2022, which was 19.64%. This shows that the headline inflation rate (year-on-year basis) increased in July 2023 when compared to the same month in the preceding year (i.e., July 2022).
“In addition, on a month-on-month basis, the headline inflation rate in July 2023 was 2.89%, which was 0.76% higher than the rate recorded in June 2023 (2.13%). This means that in July 2023, on average, the general price level was 0.76% higher relative to June 2023.
“The percentage change in the average CPI for the twelve-month period ending July 2023 over the average of the CPI for the previous twelve-month period was 21.92%, showing a 5.17% increase compared to 16.75% recorded in July 2022.’’
The food inflation rate in July 2023 was 26.98% on a year-on-year basis, which was 4.97% points higher, compared to the rate recorded in July 2022 (22.02%).
On a month-on-month basis, the food inflation rate in July 2023 was 3.45%, this was 1.06% higher compared to the rate recorded in June 2023 (2.40%).
The average annual rate of food inflation for the twelve-month ending July 2023 over the previous twelve-month average was 24.46%, which was a 5.71% points increase from the average annual rate of change recorded in July 2022 (18.75%)
The “All items less farm produce and energy” or core inflation, which excludes the prices of volatile agricultural produce and energy stood at 20.47% in July 2023 on a year-on-year basis; up by 4.41% when compared to the 16.06% recorded in July 2022.
The highest increases were recorded in prices of passenger transport by air, passenger transport by road, vehicle spare parts, medical services, maintenance, and repair of personal transport equipment, etc.
On a month-on-month basis, the core Inflation rate was 2.11% in July 2023, up by 0.34% points from 1.77% in June 2023. The average twelve-month annual inflation rate was 18.84% for the twelve months ending July 2023; this was 4.31% points higher than the 14.53% recorded in July 2022.
The devastating effect on citizens, businesses
Commenting on the latest inflation figures, Dr. Muda Yusuf, Chief Executive Officer, of the Center for Promotion of Private Enterprise, CPPE, said while the fuel subsidy removal and naira depreciation were the dominant factors behind the hike in inflation rate, he stressed that the development had had a devastating effect on citizens’ welfare and the health of small businesses.
These, he said include the weakening of the purchasing power of citizens as real incomes are eroded, thus aggravating poverty incidence; escalating production costs which negatively impact profitability; erosion of shareholder value in many businesses; weakening of investors’ confidence; and declines in manufacturing capacity utilization as a consequence of weakening sales and erosion of profit margins”
Hike in inflation to persist
On their part, analysts at Lagos-based investment banking firm, Comercio Partners, projected that the upward trend in the inflation rate would persist, given that no known measures had been effectively executed to mitigate ongoing insecurity which is the root cause of the increase in food prices.
They said: “The causes for the persistent increase in food prices are no news, given that no known measures have been effectively executed to mitigate the ongoing insecurity and displacement issues in the North. ‘’The Northern Green Harvest with its anticipated food distribution, also already hindered by high transportation costs, faced other impediments like flooding due to the ongoing rainy season.
“Meanwhile, imported food costs continue to accelerate with FX rates at N788/$ at the I&E FX window – now Nigerian Foreign Exchange Market (NFEM), and cN870/$ in the parallel market as of July 2023.
’Likewise, core inflation continues to play its hand in the uptick of headline inflation.
“The 2nd increase in pump prices to N568/ltr was unanticipated, further tightening the necks of citizens still adjusting to the initial price hike.
‘’Symmetrically, fuel consumption declined to 46.3 million litres per day for July 2023, against 66.6 million litres per day in May 2023, prior to subsidy removal.
“This translates to lower demand for fuel, depicting reduced movement of individuals and food items. Despite the anticipated operations of local refineries and the President’s 500,000 hectares ‘farmland plan’, our inflation expectations for the ensuing months remain dreary.
‘’Factors like further flood fears in Southern Nigeria, speculative price hikes in pump prices, continued depreciation of the naira and sustained dependency on imports impel our expectations.”