BY FESTUS OKOROMADU
The National Bureau of Statistics on Friday released its inflation data for November, revealing that Nigeria’s headline inflation rate climbed to a record high of 28.20 percent from 27.33 percent in October.
The figure equals the 18-year high recorded in August 2005 at 28.20 percent, as well as making it the eleventh consecutive month of escalation.
Unfortunately, financial experts seem to believe that the soaring inflation will persist in December.
For instance, an analyst at Financial Derivatives Limited says, “We expect inflation to rise further in December supported by festive demand. However, it could flatten out in January 2024 and begin to decline afterwards as the Central Bank of Nigeria maintains its hawkish monetary stance.”
He added that, “The Monetary Policy Committee (MPC) is expected to hike interest rates at its first meeting in 2024 in line with the CBN’s goal of achieving price stability.”
Offering a ray of hope, he stated that, “On the policy front, what is more comforting is that the CBN has reiterated its commitment to achieving price stability, suggesting a further hike in the monetary policy rate at its next meeting in January 2024. Therefore, inflation is likely to flatten out in the next quarter and begin to decline afterwards.”
In the same vein, analysts at Cowry Assets Management Limited, expressed a similar view saying, “As we anticipate the festive season, heightened price surges are expected, driven by increased demand and exacerbated by seasonal factors such as the post-harvest season. The prevailing currency scarcity within the financial system and the continued effects of subsidy removal are additional factors likely to amplify inflationary pressures across various sectors.
“Also, the core inflation basket faces added pressure due to the substantial depreciation of the Naira across various foreign exchange markets and the elevated prices of premium motor spirit (PMS) and diesel amid the surge in crude oil prices.”
Forecasting on the inflation rate for December, they said, “Looking ahead, our projections estimate a headline inflation rate of 28.89% for December, with an average annual inflation rate of 24.52% for 2023.”
While proffering solutions, the Cowry Researchers said, “Effectively addressing the escalating inflation rates necessitates a comprehensive approach encompassing both demand and supply-side strategies from fiscal and monetary authorities. The newly appointed CBN management team is expected to deploy a robust liquidity management strategy just as seen from the recent CRR debits and auctions in a bid to mop-up excess liquidity in the system and tame inflationary pressures. Concurrently, the fiscal authority should prioritize value-creating projects and capital spending over recurrent expenses.”
Meanwhile, analysis of the Consumer Price Inflation report for November has been attributed to multiple economic challenges facing the country due to recent policy statements of the government.
Reviewing the circumstances behind the rise, Cowry Researchers said, “The enduring acceleration in inflationary pressures which is multifaceted, emanating from heightened transportation costs, the adverse effects of climate change on food production, security challenges within the nation, and the sustained depreciation of the Nigerian Naira against the US dollar in the foreign exchange market.”
They added that, “This upward trajectory is discernible across various sectors, notably impacting food, clothing, housing, health, recreation, and restaurant categories.”
But reviewing the report from the monetary perspective, FDL analysts said, “This steep rise largely reflects the impact of money supply saturation (M3 grew by 36 percent y-o-y), exchange rate depreciation (currently trading at N1, 230/$) and high logistics costs (diesel price remains elevated at N1, 080/litre) on food prices. This was compounded by the festive-induced boost in aggregate demand.”
However, a detailed analysis of the report shows that, on a monthly basis, consumer prices manifested a notable growth of 2.1 percent in November, following a 1.7 percent increment in October. The year-on-year headline inflation rate exhibited a considerable elevation, standing 6.73 percentage points higher than the corresponding period in November 2022, illustrating a discernible upward shift.
A pivotal factor contributing to this surge is the food index, constituting over 51 percent of the inflation basket, which witnessed a substantial year-on-year increase of 132 basis points to 32.84 percent, surpassing October’s 31.52 percent. This escalation is attributed to rising prices in fundamental food commodities, including bread, cereals, oil, and fat.
Concurrently, core inflation, which excludes the volatile components of agricultural produce and energy, registered at 22.38 percent on a year-on-year basis in November 2023—a marked elevation from the 17.99 percent recorded in November 2022. Key contributors to this surge include increases in the prices of passenger transport by road, medical services, passenger transport by air, actual and imputed rentals for housing, pharmaceutical products, and accommodation services.
An important component in the report is the surge in fuel prices, particularly premium motor spirit, which witnessed a substantial year-on-year increase of 222 percent to N631 per liter. Deregulated fuels such as automotive gas oil (diesel) and household kerosene also experienced year-on-year increases of 26 percent and 25 percent to N1, 005 per liter and N1, 303 per liter, respectively. Liquefied Petroleum Gas (LPG) prices revealed a monthly rise of 14 percent and a year-on-year increase of 5 percent, reaching an average cost of N10, 546 for refilling a 12.5kg cylinder.
Analyzing the state profiles, headline inflation saw the fastest rise in Kogi (33.28 percent), Lagos (32.30 percent), and Rivers (32.25 percent) during November 2023. Conversely, Borno (22.47 percent), Katsina (24.91 percent), and Plateau (25.53 percent) recorded the slowest year-on-year increases. On a month-on-month basis, Kano (3.55 percent), Kebbi (3.34 percent), and Borno (3.24 percent) experienced the highest increases, while Taraba (0.74 percent), Anambra (1.00 percent), and Enugu (1.18 percent) recorded the slowest month-on-month inflation rises.
Examining food inflation, Kogi (41.29 percent), Kwara (40.72 percent), and Rivers (40.22 percent) recorded the highest year-on-year increases in November 2023, while Bauchi (26.14 percent), Borno (27.34 percent), and Jigawa (27.63 percent) registered the slowest growth. On a month-on-month basis, Cross River (4.37 percent), Edo (3.95 percent), and Rivers (3.91 percent) observed the highest Food inflation, while Anambra (0.63 percent), Oyo (0.91 percent), and Bauchi (1.00 percent) recorded the slowest month-on-month inflation increases.
“On the policy front, what is more comforting is that the CBN has reiterated its commitment to achieving price stability, suggesting a further hike in the monetary policy rate at its next meeting in January 2024. Therefore, inflation is likely to flatten out in the next quarter and begin to decline afterwards”
On rural and urban inflation, the NBS report indicates that in November, inflation in both the rural and urban areas ballooned to 26.43 percent and 30.21 percent respectively, 0.85 percent and 0.92 percent higher than 25.58 percent and 29.29 percent in the previous month. Monthly, both indices climbed to 1.99 percent and 2.23 percent in November from 1.67 percent and 1.81 percent in October respectively. Notably, the urban-rural inflation gap climbed to 3.78 percent from 3.71 percent in the previous month, highlighting persistent logistics and storage challenges.
Global commodity versus Nigeria
Contrary to the Nigerian situation, available data shows that global commodity prices have eased from the peak witnessed during the Russia-Ukraine conflict. In November, the global food price index averaged 120.4 points, closely aligning with the October level, marking the lowest since March 2021.
The reduction in global food prices, coupled with falling energy costs (Brent is trading below $80pb), is easing inflationary pressures in advanced economies.
In the US, for example, inflation has continued to decelerate, reaching 3.1 percent in November from the peak of 9.1 percent in June 2022.
Although the figure is above the US Fed’s 2 percent target, the sustained deceleration in price inflation influenced the US Fed’s decision to halt rate hikes for the third consecutive time, setting the stage for potential rate cuts through 2024 and beyond.
Other major central banks, including the European Central Bank and the Bank of England, have followed suit, maintaining their key policy rates at 4.5 percent per annual and 5.25 percent per annual, respectively, as inflation declined to 2.4 percent and 4.6 percent, respectively.
In the African region, the inflation trend was a mixed bag. Whilst inflation eased to 26.4 percent in Ghana (after touching a 22-year high of 54.1 percent in December 2022) and to 5.5 percent in South Africa, it climbed to 12.9 percent in Zambia and 18.19 percent in Angola due to currency pressures. In line with the global trend, the Bank of Ghana kept its interest rates steady at 30 percent for the second consecutive time.
South Africa’s central bank also opted to keep its key policy rate at 8.25 percent due to declining inflation.
However, the Central Bank of Nigeria is poised to take a potentially divergent path at its next meeting in January 2024, primarily driven by its renewed commitment to ensuring price stability.
Sustained interest rate hikes will not only taper inflationary pressures but also reduce capital flights, which could lead to an appreciation in the value of the Naira. However, it is crucial to note that other factors contributing to Nigeria’s elevated inflation, such as structural issues, supply chain disruptions, and external factors, are beyond the control of domestic monetary policy. Hence, a judicious blend of fiscal and monetary policies is necessary to effectively tackle inflation.
