Analysts Set Inflation Rate of 25.05% for August
Investment banking experts and analysts at Cowry Asset Management Limited have estimated a 25.05% inflation rate for August 2023, citing pass-through impacts of foreign exchange pressures, according to its macroeconomic update.
In July, Nigeria’s inflation rate accelerated to 24.08% as impacts of fuel subsidy removal were accounted for, representing a 129 basis point increase from 22.79% reported by the National Bureau of Statistics in the month of June.
“As we look ahead to August 2023, our anticipations project an inflation rate of 25.50%, driven by factors such as the planting season, adverse weather conditions, and lingering effects of crop diseases that are likely to dampen the potential benefits of the green harvest”.
The investment firm noted that the passthrough impact of foreign exchange pressures, the suspension of the Black Sea grain deal in Eastern Europe, and mounting domestic input costs are projected to sustain price pressure in the near term.
Analysts said the continuous vigilance of these factors, combined with targeted policy interventions, will be essential in navigating the challenges posed by elevated inflation in the coming months.
In July 2023, Nigeria’s inflation rate surged to 24.08%, marking a notable increase from the 22.79% recorded in June. This recent inflation figure, reported by the Nigeria Bureau of Statistics (NBS), stands as the highest inflation rate observed in Nigeria since September 2005, when it reached 24.30%.
According to the report, this movement reflects a 1.29% point increment from June and a substantial year-on-year rise of 4.44%, surpassing the 19.64% figure recorded in July 2022.
Cowry Asset said these statistics indicate a significant upward trajectory in the headline index on both a year-on-year basis and a month-on-month basis, which escalated to 2.89% in July from the previous month’s 2.13%.
“Although there was a temporary alleviation in inflationary pressure in December 2022, with a modest decline to 21.34%, inflation readings have since embarked on a persistent upward trajectory, climbing by a substantial 8.48%-points since February 2022”, it said in the update.
Analysts believe that the continuous inflationary surge has been primarily driven by widespread expectations of price hikes, escalating import costs due to the depreciation of the naira against the dollar in the foreign exchange market, elevated energy expenses, and price adjustments related to Premium Motor Spirit (PMS) following subsidy removal and the upward movement of oil prices.
A closer examination of regional inflation profiles for July reveals that, on a year-on-year basis, the highest inflation rates were observed in Kogi (28.45%), Lagos (27.30%), and Ondo (26.83%) states.
Conversely, Borno (20.71%), Jigawa (20.85%), and Sokoto (20.92%) experienced the slowest annual increases. When analyzing month-on-month variations, the swiftest inflationary rises occurred in Kogi (4.99%), Abia (4.12%), and Akwa-Ibom (4.07%) states, while Jigawa (0.16%), Taraba (1.09%), and Yobe (1.10%) demonstrated the least notable increases.
Delving into the inflation drivers, a cursory assessment of the report underscores a notable surge in food prices, reaching a 74-month high with a 3.45% month-on-month increase and a record-breaking year-on-year spike of 26.98% since 2005.
This surge can be attributed to a combination of factors including diminished domestic output and heightened manufacturing costs. Notably, price increments were observed across various food categories such as oil and fat, bread and cereals, fish, potatoes, yam and other tubers, fruits, meat, vegetables, milk, cheese, and eggs. The most prominent contributor to inflation, however, was the cost of food and non-alcoholic beverages, exhibiting a year-on-year escalation of 12.47% in July.
This was largely influenced by price rises in bread and cereals, meat, fish, potatoes, yam, fruits, and vegetables.
In terms of specific states’ inflation dynamics for July 2023, Kogi (34.53%), Lagos (32.52%), and Bayelsa (31.31%) encountered significant year-on-year increases, whereas Jigawa (20.90%), Sokoto (21.63%), and Kebbi (22.45%) displayed comparably slower annual rises.
Notably, food inflation reached its peak in Kogi (6.73%), followed by Akwa Ibom (5.64%) and Bayelsa (4.59%) on a month-on-month basis. Conversely, Taraba (-0.21%), Jigawa (0.28%), and Yobe (0.90%) recorded the least notable month-on-month increases.
Furthermore, the core inflation index scaled new heights, reaching 20.47% year-on-year in July 2023, representing a 4.41% increase compared to the 16.06% registered in July 2022. >>> Nigerian Treasury Bills Yield Rises to 7%
This upsurge was prominently driven by elevated prices for services such as passenger transport by air and road, vehicle spare parts, medical services, and maintenance and repair of personal transport equipment.
The amplification of core inflation was attributed to factors including PMS-induced inflation, marginal tax hikes on select items, and the repercussions of the recent apex bank’s harmonization exercise that resulted in a weakened naira.
Contributors to inflation in July encompassed transportation (1.57%), clothing and footwear (1.84%), furnishing, housing, and utilities (4.03%), as well as miscellaneous goods and services (0.40%).
Rising fuel prices, spurred by the surge in crude oil prices, played a pivotal role in elevating transportation costs. Simultaneously, housing and utility costs were impacted by the effects of foreign exchange harmonization and pump price adjustments.
The upward trend in miscellaneous goods and services prices was multifaceted, resulting from escalated costs for clothing, footwear, and personal care items across the nation.
