Economists project higher inflation ahead of NBS report

Ahead of the release of the National Bureau of Statistics report on the country’s inflation for June 2024, some economic watchers have projected that inflation would maintain its upward movement but at a slower pace as seen in recent months.

Inflation had reached a 28-year high in May at 33.95 per cent, higher than 33.69 per cent recorded in the preceding month, representing an increase of 0.26 per cent.

On a year-on-year basis, the headline inflation rate was 11.54 cent points higher compared to the rate recorded in May 2023, which was 22.41 per cent. On a month-on-month basis, the headline inflation rate of increase in May 2024 was 2.14 per cent, which was 0.15 per cent lower than the rate recorded in the previous month (2.29 per cent).

So far in 2024, headline inflation has averaged 32.49 per cent, compared to 22.20 per cent in the first five months of 2023 and 24.52 per cent for the entire year 2023.

Experts have attributed the persistent rise in inflation to the ongoing structural challenges in agriculture, including insecurity in food-producing regions, high transportation costs, and the continuous depreciation of the naira.

In May 2024, food inflation and core inflation grew at a slower pace, hitting 40.66 per cent and 27.04 per cent respectively, owing to a modest increase in the prices of some food items.

Experts at Meristem projected that the uptrend in food inflation would persist in June 2024, driven by lingering challenges in the sector.

Some of these challenges include the infestation of tomato leaves which led to higher prices for staples like tomatoes and yams during the month.

Additionally, increased demand during the Eid-el-Kabir celebration and rising importation costs are also expected to contribute to the elevated food prices in June 2024.

“We expect the core inflation index to rise further, driven by higher transportation costs and the depreciation of the naira (1.94 per cent in June).

“However, given the relatively stable naira exchange rate on the NAFEM window during the period (compared to a 5.61 per cent depreciation in May 2024), we

anticipate a month-on-month moderation in the core index. Ultimately, we project a rise in headline inflation,” they stated.

Meristem researchers projected headline inflation at 34.01 per cent, food inflation at 40.74 per cent compared to 40.66 per cent in May and core inflation (including all items less farm produce and energy) at 27.30 per cent.

Analysts at Cowry Assets Management Limited projected an even higher inflation figure of 34.25 per cent on the back of similar concerns earlier highlighted.

They said, “Over the past year, food prices in Nigeria have soared, driven by factors such as supply chain disruptions, currency depreciation, and the impact of climate change on agriculture. This has led to basic staples like rice, beans, and vegetables becoming increasingly unaffordable for the average Nigerian, stretching household budgets to their limits.

“The food index constitutes over 51 per cent of the inflation basket, and this escalation can be attributed to rising prices in fundamental food commodities, including bread, cereals, oil, and fat.

“Specifically, all 43 food items surveyed reported price increases on a year-on-year and month-on-month basis between April and May 2024. An unweighted simple average, which does not account for consumption trends, shows that the average price of food items in the bureau’s designated basket increased by 137.3 per cent year-on-year and 13.4 per cent month-on-month.”

 As the inflation figure is projected to trend upward, analysts believe that the Monetary Policy Committee of the Central Bank of Nigeria will also hike the benchmark lending rate given its avowed inflation-fighting stance.

 At different fora, the CBN governor, Dr Olayemi Cardoso, has maintained that the members of the MPC will keep the rates high to tackle inflation.

 At the BusinessDay CEO Forum on Thursday, Cardoso said, “The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilise the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming inflation, and they would do what is necessary to tame it.”

Since the beginning of the year, the MPC has raised the MPR by 650 basis points, bringing the rate to 26.25 per cent as of May 2024. The MPC is due to meet later this month.