Analysts Predict Inflation to exceed 23% as a result of recent government policies, including the removal of fuel subsidy and the depreciation of the naira in the foreign exchange market. The National Bureau of Statistics (NBS) Consumer Price Index (CPI) report for May 2023 reveals that the year-on-year headline inflation rose by 0.19 percentage points to 22.41% in May compared to 22.22% in April.
Analysts Predict Inflation is the highest recorded in Nigeria since September 2005 and marks the third consecutive month of remaining within the 22% range. The removal of fuel subsidy by the federal government has led to a significant increase in the pump price per litre, exceeding 100%. Additionally, the Central Bank of Nigeria (CBN) recently floated the foreign exchange rate, resulting in a 40% depreciation of the local currency, the Naira, to N664.04/$ in the official market.
According to the NBS report, “In May 2023, the headline inflation rate increased to 22.41% compared to the April 2023 headline inflation rate, which was 22.22%. The May 2023 inflation rate showed an increase of 0.19 percentage points compared to the April 2023 headline inflation rate.”
The report also highlights that food inflation rose to 24.82% in May from 24.61% in April, mainly due to price increases in oil and fat, yam and other tubers, bread and cereals, fish, potatoes, fruits, meat, vegetables, and spirits.
In response to these developments, Cowry Asset Management Plc, in its inflation update report for May, states that previous measures implemented by the Nigerian government, such as raising interest rates, devaluing the naira, and subsidizing essential goods, have failed to effectively control inflation.
The new administration has indicated a need for interest rate moderation to stimulate investment and enhance consumer purchasing power, but this move is anticipated to further escalate the inflation rate. Additionally, the recent decision by the CBN to float the naira is expected to lead to further depreciation and result in more expensive imports and upward inflationary pressure. Cowry Asset Management predicts a surge in the headline inflation index to 23.6% in June.
Financial Derivative Company (FDC), in their Economic Bulletin for June, also projects a substantial impact on inflation from the petrol price adjustment, estimating it to reach 25.2%. However, they note that the price of diesel, which is a major fuel used in logistics by trucks, has decreased by 12.70% to N660/ltr in June from its peak of N756/ltr in May, which could mildly alleviate inflationary pressures. FDC suggests that another interest rate hike may be imminent.
Overall, the combination of government policies, including the removal of fuel subsidy and naira depreciation, is expected to contribute to a significant rise in headline inflation, posing challenges to the Nigerian economy and the purchasing power of consumers.
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