Election Spending to Keep Inflation Up after 18-Month Jump
As the campaign for 2023 election commenced, a slew of analysts has projected that headline inflation will remain stubbornly high after 18 months on the expectation that free monies will flood the economy.
On that note, large numbers of investment banking firms’ positions remain that pressures will not abate in the financial year 2022. Large numbers of companies and of course consumer goods retailers are adjusting prices upward.
The impact on costs and standard of living has spilt across, though Nigeria’s unemployment rate remains stubbornly high and purchasing power of the local currency, the naira, has reduced significantly since 2015.
FX rate has worsened from N197 to a United States dollar sold for importers in 2015, depreciating to N437 at the Investors and Exporters window. In the parallel market, the foreign exchange rate has plunged significantly on the back of low foreign currency inflows.
Over the past 18 months, Nigeria’s headline inflation has recorded consistent upticks, hitting 20.52% in August, 2022.
This is in stark contrast to CBN’s single-digit target, eroding consumers’ purchasing power, according to Coronation Research. This year the highest increase in the headline measure has been 105 basis points in July while June and August registered rises of 89 basis points and 88 basis points respectively.
Food inflation has been the primary driver of acceleration in the headline rate, according to separate analysts’ notes including the statistics office following supply-side constraints which have worsened due to the Russia-Ukraine crisis.
MarketForces Africa had earlier reported that food inflation has been on the rise since the closure of the country’s land borders in August 2019 – despite few alternatives that were more expensive than imported.
Although a slight slowdown was recorded in mid-2021, food inflation is still significantly higher than pre-pandemic levels, Coronation Research said in a macroeconomic note.
The National Bureau of Statistics (NBS) selected food price watch report for August recorded year-on-year increases in the prices of 41 out of the 43 food items surveyed.
Analysts stated that the rise in food prices is partly due to supply bottlenecks, stemming from persisting security challenges, especially in major food-producing regions of the country.
Meanwhile, the price of imported food (which accounts for 13.3% of the basket) has been relatively stable, rising month on month between 1.20% and 1.34% since January 2019.
This is despite challenges in accessing FX, supported by anecdotal evidence suggesting that importers meet some of their foreign currency needs via the parallel market. READ: CBN Seeks Financial Sector Active Participation in AfCFTA
The latest NBS inflation report reveals that the transport segment, which accounts for 6.5% of the basket, posted price increases of 1.64% m/m and 18.24% year on year in August, compared with 1.64% month on month and 17.58% recorded in July.
The transport segment is directly impacted by the price of Premium Motor Spirit (PMS) or gasoline. The price increases recorded in the health segment were 1.4% month on month and 15.3% year on year in May.
Inflationary pressures are expected to persist in the coming months, Coronation Research said. The firm’s analysts expect the headline inflation to increase by at least 213 basis points from 20.5% recorded in August 2022.
Furthermore, the CBN’s in-house estimates suggest that inflation is expected to remain considerably high, partly due to the build-up of increased spending related to the 2023 general elections; it said.
# Election Spending to Keep Inflation Up after 18-Month Jump#