In June, Nigeria’s monthly inflation rate surged to a seven-year high, with prices climbing to 2.1 percent for the month, the highest level recorded since May 2016. This comes on the heels of President Bola Tinubu’s decision to end fuel subsidies, which led to a sharp increase in petrol pump prices which subsequently, in turn, drove up the cost of necessities like food and transportation. However, the government has responded by declaring a state of emergency on food in an effort to control the rising prices of basic food.
Figures released by the National Bureau of Statistics (NBS) shows that overall inflation in the country accelerated further in June 2023, reaching 22.79 percent from 22.41 percent in May 2023. There was a rise of 0.38 percent in June compared to the previous month. Inflation rate measured on a year-on-year basis, increased by 4.19 percent in June 2023 compared to June 2022 when it was 18.60 percent. When compared to the same month one year prior, this represents an increase in the inflation rate.
Monthly food inflation moved up to 25.25% from 24.8%.
On a month-on-month data analysis, June 2023 overall inflation rate of 2.13% was an increase of 0.19% from May 2023 rate of 1.94%. This indicates that, on average, prices were 0.19 percent higher in June of 2023 than they were in May. According to the NBS report, the annual percentage increase in the Consumer Price Index (CPI) was 21.54 percent in the twelve months ended in June 2023, up from 16.54 percent in the previous year’s corresponding month. Over 2 percent increase in consumer prices was recorded in June compared to May.
High food prices as a result of the removal of fuel subsidies, drove the yearly and monthly rate increases. In June 2023, food inflation accelerated to 25.25% from 24.8% in May 2023. On a year-on-year basis, food inflation in June (25.25%) was up by 4.65% from 20.6 percent recorded in June 2022. Since entering office in late May, Tinubu has eliminated hefty fuel subsidies instituted in the 1970’s and loosened foreign-exchange regulations, both of which pushed up transportation and import expenses.
July inflation rate is predicted to be between 25% and 26%..
As a result, petrol pump price has nearly tripled, and the currency has depreciated by 40% against the dollar in the past month, and now stood at over N800 at the time of report. The recent official declaration of a food emergency would enable the government to take extraordinary measures to increase both food security and supplies, such as subsidising the cost of inputs like fertilizer and seed. To mitigate the effects of discontinuing fuel subsidies in the country, the president has given the green light to spending of 500 billion Naira.
With inflation picking up steam on both yearly and monthly basis, and with many experts predicting that price pressures will continue high, the Central Bank Monetary Policy Council (MPC) may decide to raise interest rates later this month. Bismarck Rewane, CEO of Financial Derivatives Co. in Lagos, said the effects of the subsidy elimination and currency rate weakening will certainly show effect in the July statistics. He claimed that the impact first arose towards the beginning of July, citing examples of Wheat prices increasing on July 1st and the price of bread which is set to be increased on July 27th. For the month of July, Rewane predicted the inflation rate will be between 25 and 26 percent.
MPC may decide to raise interest rates by 50 basis points.
Since May 2022, the MPC has increased interest rates by 700 basis points, bringing the current rate to 18.5%. This is in response to inflation that has been running at more than double the upper end of its 6% to 9% aim range for over a year. At its previous two meetings, it increased rates by 50 basis points. According to IC Group economist Mosope Arubayi, the MPC may decide to raise interest rates by another 50 basis points at their upcoming meeting on July 24–25 in light of the likelihood of further inflationary pressures arising from the continual currency devaluation and fiscal reforms.