LAGOS, Nigeria (VOICE OF NAIJA)-In anticipation of the National Bureau of Statistics report on the country’s June 2024 inflation, some economic analysts predict that while inflation will continue to rise, it will do so at a slower rate, as observed in recent months.
In May, inflation reached a 28-year high of 33.95 percent, up from 33.69 percent in the previous month, marking a 0.26 percent increase.
Year-on-year, the headline inflation rate was 11.54 percentage points higher than in May 2023, which stood at 22.41 percent.
On a month-on-month basis, the headline inflation rate increase in May 2024 was 2.14 percent, 0.15 percent lower than the 2.29 percent recorded the previous month.
In 2024, the average headline inflation rate has been 32.49 percent, significantly higher than the 22.20 percent recorded in the first five months of 2023 and the 24.52 percent average for the entire year of 2023.
The persistent rise in inflation is largely attributed by experts to structural challenges in agriculture, including insecurity in food-producing areas, elevated transportation costs, and the ongoing depreciation of the naira.
In May 2024, food inflation and core inflation rose at a slower pace, reaching 40.66 percent and 27.04 percent, respectively, due to a modest increase in the prices of some food items.
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Experts at Meristem predict that the upward trend in food inflation will continue in June 2024, driven by ongoing sector challenges.
These challenges include the infestation of tomato leaves, which has led to higher prices for staples like tomatoes and yams.
Additionally, increased demand during the Eid-el-Kabir celebration and rising importation costs are expected to contribute to elevated food prices in June 2024.
“We expect the core inflation index to rise further, driven by higher transportation costs and the depreciation of the naira (1.94 per cent in June).
“However, given the relatively stable naira exchange rate on the NAFEM window during the period (compared to a 5.61 per cent depreciation in May 2024), we anticipate a month-on-month moderation in the core index. Ultimately, we project a rise in headline inflation,” they stated.
Meristem researchers forecast headline inflation at 34.01 percent, food inflation at 40.74 percent (up from 40.66 percent in May), and core inflation (excluding farm produce and energy) at 27.30 percent.
Analysts at Cowry Assets Management Limited projected an even higher inflation rate of 34.25 percent, citing similar concerns as previously mentioned.
They said, “Over the past year, food prices in Nigeria have soared, driven by factors such as 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.
“The food index constitutes over 51 per cent of the inflation basket, and this escalation can be attributed to rising prices in fundamental food commodities, including bread, cereals, oil, and fat.
“Specifically, all 43 food items surveyed reported price increases on a year-on-year and month-on-month basis between April and May 2024. An unweighted simple average, which does not account for consumption trends, shows that the average price of food items in the bureau’s designated basket increased by 137.3 per cent year-on-year and 13.4 per cent month-on-month.”
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With inflation expected to continue rising, analysts anticipate that the Monetary Policy Committee of the Central Bank of Nigeria will raise the benchmark lending rate in line with its commitment to combat inflation.
At various forums, CBN Governor Dr. Olayemi Cardoso has reiterated that the MPC members will maintain high rates to address inflation.
At the BusinessDay CEO Forum on Thursday, Cardoso said, “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 stabilise 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 inflation, and they would do what is necessary to tame it.”
Since the start of the year, the MPC has increased the MPR by 650 basis points, raising it to 26.25 percent as of May 2024.
The MPC is scheduled to meet later this month.