Hike In Food, Energy Prices May Push Inflation To 18.51%

The Nigerian economy is expected to plunge deeper in the months to come as inflation in the country is projected to quicken to 18.51 per cent for June.

Access Bank’s Economic Intelligence Unit report released Wednesday attributed rising food and energy prices as drivers for the anticipated inflationary surge. Prices of food items have unabatedly increased while the price of diesel has refused to drop from N800 per litre since March while that of petrol hovers between N200 and N300 in many cities in the country against the N165 recommended government price.

“Headline inflation for June 2022 to rise to 18.51 per cent from 17.71 per cent recorded in May 2022. The faster rise in the general price level is due to several factors. Firstly, imported inflation arising from the ongoing Russia-Ukraine war,” the report stated.

The National Bureau of Statistics (NBS) which is scheduled to release the inflation figure for June 2022 on July 15, 2022, in its last report, announced a 17.71 per cent inflation rate for May.

Inflation in Nigeria has been worsened by external factors including the Russia-Ukraine crisis, a fact acknowledged by the Access Bank’s EIU report which noted that the “faster rise in the general price level is due to, imported inflation arising from the ongoing Russia-Ukraine war, amongst others.

“The crisis has aggravated supply chain disruptions which had existed at the onset of covid-19. Multi-year highs were recorded in inflation rates across many advanced economies. These price increases are transmitted into the Nigerian economy via the high price of imported consumers and capital goods. Secondly, supply disruptions of agricultural produce due to insecurity concerns in food basket states also contributed to rising price levels. ”

The bank noted that it used the application of an autoregressive model using lags of the composite consumer price index {CPI) and a survey-based inflation expectation within the same product definitions adopted by the NBS.

“Food and energy prices rose in June due largely to soaring gas prices and transportation costs. Consequently, we expect the CPI to rise to 455.08 points from 447.23 points in the preceding month.

The steep rise in staple food prices was mainly attributed to rising in the cost of production, seasonal food produce, and continuous insecurity in food-producing states

“Prices of food and non-alcoholic beverages, the largest component in the consumption basket (with a weight of 51.8 per cent) ascended compared to last month; items that rose in prices included yam, rice, vegetable oil, bread, fruits, onions and spaghetti amongst others.

“Gas prices soared by 10.52 per cent to N10,500 for the 12,5kg from N9,500 the previous period. The Naira depreciated marginally at the Nigerian Autonomous Foreign Exchange (NAFEX) window by1.91/US$ to N421.29/US$ on June 30th, 2022 from N419.38/US$ the previous month.

However, the Naira is currently exchanging for the US dollars at N615 on the black market being traded by the Bureau de Change operators.

Explaining the Money and Fixed Income Market, the EIU report said, “We hold the view that yields would remain around the same levels given that no significant triggers warrant a yield spike in the market. Yields on the 6-month and 9-month treasury bills rose to 5.37 per cent and 5.87 per cent on June 30th, 2022, from 3.47 per cent and 3.93 per cent, respectively in May 2022.

Furthermore, the report also affirmed that the recent interest rate hike by the Central Bank of Nigeria(CBN) monetary policy committee to address the current soaring inflation may have no effect.

“The CBN monetary policy committee unanimously voted to hike the monetary policy rate (MPR) to 13 per cent at its last meeting in May 2022 from 11.5 per cent.

The committee raised rates to rein in the current soaring inflation as the uptrend could potentially hamper economic growth. We envisage that this action may have little effect in driving the inflation rate southwards in the coming months.