Naira Depreciation, Subsidy Removal Push Inflation to 22.79%

Nigeria’s inflation rate rose further to 22.79 per cent Year-on-Year (YoY)   in June 2023 from 22.41 per cent previous month of May.

But analysts appear surprised that the increase was moderate, beating their projections at the backdrop of the reforms in the petroleum and foreign exchange sectors which pushed up prices in June.

However, the National Bureau of Statistics, NBS,   said the food inflation rate quickened YoY to 25.25 per cent in June from 24.82 per cent in May.

The Bureau stated: “On a YoY basis, the Headline inflation rate was 4.19 percent points higher compared to the rate recorded in June 2022, which was 18.6 percent.

This shows that the headline inflation rate (YoY basis) increased in June 2023 when compared to the same month in the preceding year (i.e., June 2022).

“On a year-on-year basis, the Urban inflation rate in June 2023 was 24.33 percent, this was 5.23 percent points higher compared to the 19.09 percent recorded in June 2022.

“The Rural inflation rate in June 2023 was 21.37 percent on a YoY basis; this was 3.25 percentage points higher compared to the 18.13 percent recorded in June 2022.”

On food inflation, it said: “The food inflation rate in June 2023 was 25.25 percent on a YoY basis; this was 4.65 percentage points higher relative to the rate recorded in June 2022 (20.6 percent).

“The rise in Food inflation on a YoY basis was caused by increases in prices of oil and fat, bread and cereals, fish, potatoes, yam and other tubers, fruits, meat, vegetable, milk, cheese, and eggs.”

Commenting on the development, analysts at CardinalStone Research   said: “The outturn defied expectations and printed materially lower than our projection of 25.0%, with deviations stemming from a positive surprise in the core inflation basket.

“We had anticipated that the 175.2% jump in average PMS prices (following subsidy removal) would have resulted in a 300-400bases points (bps) surge in Month-on-Month (MoM) headline inflation.

“However, the latest report revealed that while all its subcomponents increased by an average of 13bps MoM, core inflation surprisingly moderated by 7bps.

However, the analysts added, “Despite the shock numbers, we see latitude for more inflationary pressures in the coming months partly due to the lagged impact of subsidy removal and its pass-through to broader prices. In addition, the recent uptick in parallel market rates (possibly stoked by seasonal demand) will likely add another layer of pressure on prices.”

Commenting as well, analysts at Cordros Research said: “We expect pressures on food inflation to remain intact in July, as higher transport costs will likely continue to filter into food prices. In addition, we understand that Russia is considering terminating the Black Sea grain deal (which expires on 17 July) as part of the agreement concerning the country is yet to be fulfilled. Accordingly, we expect the preceding to pose further risk to imported food prices in the near term”.

“Finally, July marks the beginning of the lean season in the north amid high flooding in the southern region. Thus, the food demand-supply gap is likely to remain wide. Therefore, we expect food prices to rise by 2.10% in July.”

July 18, 2023