•May force CBN to act at Sept policy meeting –Otunuga, research analyst
By Chinelo Obogo, Isaac Anumihe, Abuja and Merit Ibe
Senior research analyst at FXTM, Lukman Otunuga, has predicted that the current inflation which stands at 24.08 per cent, the highest in 10 years may force the Central Bank of Nigeria (CBN) to make serious policy decisions at its September meeting.
Otunuga who commented against the backdrop of inflation figures released by the National Bureau of Statistics (NBS) yesterday, observed that though inflationary pressures are gradually easing across the globe, it remains prevalent in Nigeria compared to the United States which has witnessed consumer prices coming down from a peak of 9.1 per cent in June 2022.
He however noted that while higher rates have the potential to cap and control inflation, it could come at the cost of economic growth which expanded by 2.31 per cent during the first quarter of 2023.
“Unlike the United States which has witnessed consumer prices coming down from a peak of 9.1 per cent in June 2022, Nigeria’s inflation remains hot, stubborn, and unyielding. The current annual inflation rate for Africa’s largest economy stands at a whopping 24.08 per cent – its highest since September 2005. Persistent signs of rising inflation may force the Central Bank of Nigeria to act once again at its next policy meeting in September. It is worth keeping in mind that the CBN has recently lifted its benchmark rates by 25bp to 18.75 per cent – its fourth consecutive rate hike in 2023. While higher rates have the potential to cap and control inflation, it could come at the cost of economic growth which expanded by 2.31 per cent during the first quarter of 2023.
“In the currency space, the naira took another beating on the black-market exchange. The local currency slumped to N932 as dollar shortages worsened two months after the CBN adopted a flexible exchange rate regime. Should the current themes negatively impacting the Naira remain present, prices may hit N1000 in a matter of time. Such a development that will most likely increase the cost of living and squeeze households further in the short to medium term. Outside of Nigeria, we have witnessed how higher interest rates have somewhat capped and controlled inflation albeit at a price. For Africa’s largest economy, the key question is when will inflation eventually peak?
In the oil sector, he said: “Prices have the potential to push higher amid growing optimism over the global demand outlook. According to the International Energy Agency, global demand for oil has surged to a record thanks to strong consumption from China. On the supply side, production cuts from OPEC+ have fuelled concerns around tighter supply, further supporting upside gains.
Meanwhile, in its reaction, the Centre for the Promotion of Private Enterprise (CPPE), remarked that the surging inflation rate has had a devastating effect on citizens’ welfare and the health of small businesses.
Director of the Centre, Dr Muda Yusuf, who made the statement following the headline inflation, which accelerated to 24.08 percent in July as against 22.79 percent in June warned the trend was unhealthy for growth and citizens’ wellbeing
According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rate increased to 24.08 per cent in July 2023.
In the report, the figure was 1.29 per cent points higher compared to the 22.79 per cent recorded in June. It said on a year-on-year basis, the headline inflation rate in July was 4.44 per cent higher than the rate recorded in July 2022 at 19.64 per cent.
According to the CPPE boss, food inflation maintained its upward trajectory, accelerating to 27 per cent.
“Evidently, we are yet to see an abatement to the key factors fueling inflation. The inflationary pressures have intensified,”adding that some of these factors are global, while others are domestic.
In his view, these factors include the depreciating exchange rate, spike in energy prices, rising transportation costs, logistics challenges, forex market illiquidity, hike in diesel cost, insecurity in many farming communities and structural bottlenecks impeding productivity. “These are largely supply side and policy concerns. But the petrol price increase following the fuel subsidy removal and the sharp depreciation in the exchange rate were dominant factors.”
The CPPE boss analysed that counting inflationary pressures have the following consequences for the economy; “Weakening of purchasing power of citizens as real incomes are eroded thus aggravating poverty incidence.
“Escalating production costs which negatively impacts profitability, Erosion of shareholder value in many businesses.,“weakening of investor manufacturing capacity utilisation as a consequence of weakening sales and erosion of profit margins” He proffered that tackling inflation requires urgent government intervention to address the challenges bedevilling the supply side of the economy.
“It is imperative to urgently fix production and productivity constraints, stabilize the exchange rate by ensuring liquidity in the forex market, tackle insecurity, accelerate efforts to ensure domestic refining of petroleum products and fast-tracking tax and fiscal reforms to curb escalating deficit spending.
To give producers and citizens some relief, the government should tweak the tariff policies by granting concessionary import duty on intermediate products for industrialists, especially those in the food processing segments of the agriculture value chain.”
The rising inflation of goods and services which appears irresolute in recent times, has in July, hit 24.08 per cent from June’s rate of 22.79 per cent.
In a statement, National Bureau of Statistics (NBS), pointed fingers at food inflation rate in July 2023 which was 26.98 per cent on a year-on-year basis.
According to the bureau, the food inflation was 4.97 per cent points higher compared to the rate recorded in July 2022 (22.02 per cent).
“The rise in food inflation on a year-on-year basis was caused by increases in prices of oil and fat, bread and cereals, fish, potatoes, yam and other tubers, fruits, meat, vegetable, milk, cheese, and eggs.
“On a month-on-month basis, the food inflation rate in July 2023 was 3.45 per cent. This was 1.06 per cent higher compared to the rate recorded in June 2023 (2.40 per cent).
“The rise in food inflation on a month-on-month basis was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, fish, oil, and fat.
“The average annual rate of food inflation for the twelve-month ending July 2023 over the previous twelve-month average was 24.46 per cent, which was a 5.71 per points increase from the average annual rate of change recorded in July 2022 (18.75 per cent),” NBS said.
The bureau noted that looking at the movement, the July 2023 headline inflation rate showed an increase of 1.29 per cent points when compared to June 2023 headline inflation rate saying that on a year-on-year basis, the headline inflation rate was 4.44 per cent points higher compared to the rate recorded in July 2022, which was 19.64 per cent.
“This shows that the headline inflation rate (year-on-year basis) increased in July 2023 when compared to the same month in the preceding year (i.e., July 2022).
“In addition, on a month-on-month basis, the headline inflation rate in July 2023 was 2.89 per cent, which was 0.76 per cent higher than the rate recorded in June 2023 (2.13 per cent). This means that in July 2023, on average, the general price level was 0.76 per cent higher relative to June 2023,” NBS said.