Unstable FX Rate, High Food Costs to Keep Inflation Uptrend
Nigeria’s inflation rate has been projected to rise further due to negative impact high logistics costs and exchange rate pressures on food items across the markets.
A slew of analysts’ toll this bearish line ahead of monthly inflation report for October. In a note, Cowry Asset Limited projected that inflation would rise to 33.10% for October on the back of recent increase in pump price of petrol and flooding in some parts of the country.
Analysts also see downside relating to recent reversal in the food index due to supply chain disruption spurred by insecurity challenges and currency depreciation. “Also, the core index may remain elevated unless the fiscal authorities take decisive actions to manage high PMS prices and mitigate scarcity across the country.”
Cowry Asset maintained that without such intervention, there could be increased pressure on transportation costs, which will likely affect the headline inflation index further.
In Nigeria, price pressures remain elevated from fuel hikes, currency depreciation, and agricultural disruptions. Projected mixed index has gone through the roof, household aggregate spending had dropped massively.
Despite CBN’s rate hikes and the government’s zero-duty import policy, structural issues, such as supply chain inefficiencies and security concerns, have continued to limit their impact on the whole, Cowry Asset Limited said..
Analysts stated that Nigeria’s inflation rate has fluctuated markedly in 2024, driven by rising fuel prices, currency depreciation, and ongoing disruptions in agricultural supply.
“These factors have brought inflation to near 30-year highs, exacerbating price pressures across the economy despite high-interest rates and concerted, albeit one-sided, policy efforts from fiscal and monetary authorities to curb consumer price inflation”.
However, September saw inflation climb again to 32.7%, largely due to persistently high food costs, widespread flooding, and ongoing currency pressures. This uptick was driven primarily by higher energy costs, with petrol prices rising from N980 to around N1,050 per litre in Lagos and even higher in other states.
“These adjustments could push the headline index above 35% by December”, Cowry Asset Limited said. Food prices in particular have played a substantial role in the elevated headline rate.
Sept data from the National Bureau of Statistics (NBS) revealed showed that food inflation rose to 37.77% year on year, up by 25 basis points from August’s 37.52%. The increase was as a result of heightened insecurity, high farm input costs, and flooding across food-producing regions, according to analysts.
And on a more positive note, the core inflation, which excludes food and energy, slightly eased for the first time in ten months, declining from 27.58% in August to 27.43% in September. Cowry Asset Limited is of the view that a reversal is likely in October following recent developments in Nigeria. Foreign Investors Bet on Nigeria Eurobonds after Rates Cut
