THE worsening price level is far from receding, Nigeria’s headline inflation rate is expected to run amok in the financial year 2023, as analysts’ consensus shows the running consumer price index is just gathering momentum.
A growing number of Broadstreet analysts are projecting that inflation will reach new heights in the year, three times the monetary authority’s inflation targeting. Nigeria was launched into inflation mode in August 2019 when former President Muhammadu Buhari locked borders against goods coming from outside.
As much as the policy appears good for local industry, the lack of home advantages in productive activities spurred prices as local companies found it easy to jerk up to pay for inefficiencies.
Since February 2022, Nigeria’s consumer price index has stayed elevated due to food shortages, increases in energy costs, multiple currency devaluations, trade restrictions and a few others, CSL Stockbrokers said in a market report.
The investment firm said recent policies such as the removal of fuel subsidies, the unification of the exchange rate at the various official windows and the implementation of new import duties and taxes from the Finance Act are expected to keep the nation’s headline inflation rate high.
The National Bureau of Statistics reported that the headline inflation rate accelerated by 24.08% year on year in July 2023. The uptick was driven by an increase in the food inflation rate- specifically.
According to the statistics office, the food index increased by 20.47% year on year and the core inflation advanced by 26.98% year on year in the period.
“Food insecurity has been a cause of concern as the challenges of insurgency, low investments in Agriculture, low mechanized farming, inadequate food storage methods and poor transport infrastructure have suppressed supply while demand for food products in a population dense country remains high.
“The five-year tax break provided by the Federal Government to stimulate investments in the agricultural sector is yet to improve output in the sector”, CSL Stockbrokers said in its market update.
Analysts also noted that the price levels of food products have risen significantly over the years as all of the factors mentioned above have either directly affected prices or have indirectly affected food prices through increased transport costs.
The report said the major drivers of the continuous growth in core inflation are increases in the prices of housing, water, electricity, gas and other fuels. And then, the impact of fuel subsidies on logistics has widespread effects across various sectors.
Recently transport costs have been adversely affected by the deregulation of Petroleum Motor Spirit, causing the price of fuel to surge by about 159.12% to an average of N617.00/litre from an average price of N238.11/litre as of May 2023, analysts pointed out in the note.
CSL Stockbrokers said the N5 billion palliative approved by the FGN to lessen the impact of the rise in fuel price on consumers will likely do little as the price of crude oil maintains its northward position in the international market.
Moreover, the Discos have been clamouring for an increase in electricity tariffs in line with current realities, saying these factors will likely keep core inflation high in the short to medium term.
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