Inflation Concerns in Nigeria: Projections for June 2024
As Nigeria braces for the release of the National Bureau of Statistics report on the country’s inflation for June 2024, economic analysts are already predicting an upward trend, albeit at a slower pace compared to previous months. In May 2024, Nigeria’s inflation rate reached a staggering 33.95 percent, the highest in 28 years, marking a slight increase from April’s 33.69 percent. This alarming rise is primarily attributed to the ongoing structural challenges in agriculture, high transportation costs, and the continuous depreciation of the naira.
Inflation Trends and Projections
On a year-on-year basis, the headline inflation rate for May 2024 was 11.54 percentage points higher than the 22.41 percent recorded in May 2023. On a month-to-month basis, the increase was 2.14 percent in May 2024, which was slightly lower than the 2.29 percent rise seen in the previous month. Throughout the first five months of 2024, Nigeria’s headline inflation averaged 32.49 percent, a significant increase from the 22.20 percent average recorded during the same period in 2023, and the 24.52 percent average for the entire year 2023.
Factors Driving Rise in Price of Commodities
Experts attribute the persistent rise in inflation to several key factors:
1. Agricultural Challenges: Structural issues in agriculture, including insecurity in food-producing regions, have disrupted supply chains.
2. High Transportation Costs: Increased costs of transportation continue to drive up prices.
3. Depreciation of the Naira: The continuous fall of the naira against major currencies has further compounded inflationary pressures.
In May 2024, food inflation and core inflation grew at a slower pace, hitting 40.66 percent and 27.04 percent respectively, due to a modest increase in the prices of some food items. However, experts from Meristem project that the upward trend in food inflation will persist into June 2024, driven by ongoing challenges in the agricultural sector, including the infestation of tomato leaves, which has led to higher prices for staples like tomatoes and yams.
Impact of Eid-el-Kabir Celebration
The Eid-el-Kabir celebration is also expected to contribute to elevated food prices in June 2024 due to increased demand. Additionally, rising importation costs are likely to further exacerbate the situation. Meristem researchers project headline inflation at 34.01 percent, food inflation at 40.74 percent, and core inflation at 27.30 percent for June 2024.
Projections from Cowry Assets Management Limited
Analysts at Cowry Assets Management Limited have projected an even higher inflation figure of 34.25 percent, citing similar concerns. They highlight that over the past year, food prices in Nigeria have soared due to supply chain disruptions, currency depreciation, and the impact of climate change on agriculture. This has led to basic staples like rice, beans, and vegetables becoming increasingly unaffordable for the average Nigerian, stretching household budgets to their limits.
According to Cowry Assets Management, the food index, which constitutes over 51 percent of the inflation basket, has seen significant price increases in fundamental food commodities such as bread, cereals, oil, and fat. All 43 food items surveyed reported price increases on both a year-on-year and month-to-month basis between April and May 2024. An unweighted simple average shows that the average price of food items increased by 137.3 percent year-on-year and 13.4 percent month-on-month.
Monetary Policy Committee’s Stance
As inflation continues to trend upward, analysts believe that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will likely hike the benchmark lending rate in its ongoing effort to combat rise in price of commodities. The CBN governor, Dr. Olayemi Cardoso, has consistently emphasized the MPC’s commitment to taming inflation.
Speaking at the BusinessDay CEO Forum, Cardoso stated, “The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilize the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming rise in price of commodities, and they would do what is necessary to tame it.”
Since the beginning of 2024, the MPC has raised the Monetary Policy Rate (MPR) by 650 basis points, bringing the rate to 26.25 percent as of May 2024. The MPC is scheduled to meet later this month to decide on further measures.
As Nigeria continues to grapple with rising cost of living, it is clear that addressing the underlying structural issues in agriculture, transportation, and currency stability is crucial. The projections for June 2024 indicate a continued upward trend in inflation, driven by persistent challenges in the food sector and broader economic pressures. The actions of the MPC and other stakeholders in the coming months will be critical in determining the trajectory of Nigeria’s inflation and overall economic stability.
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