BY EMEKA EJERE
With worsening economic hardship occasioned by the removal of petrol subsidy and unification of exchange rates not likely to abate anytime soon, it is almost certain that the forthcoming Christmas and New Year celebrations will be low key in most households across the country.
In Nigeria, where more than half of the population of about 200 million lives on less than $2 a day, every little price increase puts a significant strain on household incomes. At least 133 million people suffer from “multi-dimensional poverty”, according to the National Bureau of Statistics (NBS).
Stakeholders are particularly concerned about the impact of runaway food inflation on households and how the crisis could push more individuals below the poverty line.
It is no longer news that the soaring prices of bread, fish, eggs and other essential food items have pushed Nigeria’s headline inflation to a new 18-year high, worsening the cost-of-living crisis facing many households.
Data released by the NBS on Wednesday show that the inflation rate, which was largely driven by food prices, quickened in October for the 10th consecutive month. It rose to 27.33 percent from 26.72 percent in the previous month, according to the Consumer Price Index (CPI), which measures changes in prices of goods and services.
The CPI report shows that food and non-alcoholic beverages contributed the most (14.16 percent) to the increase in the headline inflation. Food inflation rose to 31.52 percent in October from 30.64 percent in the previous month.
“The rise in food inflation on a year-on-year basis was caused by increases in prices of oil and fat, bread and cereals, potatoes, yam and other tubers, fish, fruit, meat, vegetables, milk, cheese, and eggs,” the NBS said.
Flour and sugar, which are major components of bread, were among the commodities that recorded the highest price increases, analysts at Financial Derivatives Company Limited (FDC), led by foremost Economist, Bismarck Rewane, said in their latest economic bulletin.
The FDC analysts said, “The price of flour has spiked by 46.88 percent to N47,000 per 50kg bag from N32,000 a year ago, The prices of locally produced commodities have remained on an upward trend despite the harvest season (October-December) “largely because of higher logistics costs, poor road infrastructure, and other logistics constraints, Disturbingly, inflation continues to bite, retarding growth and eroding consumer disposable income,”
Uptrend in reality
According to recent food market survey conducted by Business Hallmark, the cost of filling a 12.5kg cylinder of gas increased by 44% in October 2023, selling for an average of N13,750. Also, the price of a 50kg bag of foreign rice increased by 13.5% in the same month to sell for an average of N47,850 compared to N42,000 recorded in the previous month.
According to Our World in Data, Nigeria is in the top spot of countries with the highest food expenditure, with the percentage of total personal income that goes into food estimated at 60 percent.
Experts said the situation would worsen if food inflation continues to uptick, a projection that implies more misery for those at the bottom of the economic ladder. The NBS inflation reading aligns with expert estimations, which have projected the country’s inflation to hit 30 per cent before any inflection set in.
KPMG, in its macroeconomic review for the first half of 2023, along with projections for the second half of the year, forecasts that Nigeria’s headline inflation will rise to 30 percent by December 2023, attributing the anticipated increase to recent reforms, such as fuel subsidy removal, and the unification of the foreign exchange market.
“Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalisation may drive headline inflation to about 30 per cent by December 2023.”
On how to control inflation, the report explained that the current MPR hike being adopted by the apex bank in the last 18 months has proven ineffective in stalling the increasing inflationary trend.
However, it advised that addressing issues such as energy and transportation costs, supply chain problems, and boosting local production will be more effective than increasing interest rates.
Also, in its latest report about Nigeria, the Economist Intelligence Unit’s (EIU), noted that the poor performance of naira and rise of black-market push factors signal a cloudy outlook for inflation.
The report said currency losses on the parallel market, where a sizable share of foreign exchange is transacted, would be a major driver of imported inflation going into 2024. From an estimated rate of 30.5 percent at the end of the year, it warned that inflation would stay high at 23.6 percent in 2024 on average for the year.
In his intervention, the Managing Director, Afrinvest West Africa Limited, Ike Chioke, advised monetary and fiscal authorities to rethink their anti-inflation strategies to holistically address the ugly narrative of surging inflation rate.
Speaking during the unveiling of the Afrinvest West Africa Limited 2023 Nigerian Banking Sector Report titled, ‘Getting Nigeria to Work Again’, in Lagos, Chioke explained that both the monetary and fiscal authorities have mainly been fixated on the control of money supply and selective tax reliefs.
He said an effective strategy for taming the high inflation rate would be one that addresses structural bottlenecks, notably, insecurity and infrastructural gaps.
Others, he said, include those that improve ease of doing business, and incentivise large-scale local production of agriculture and manufactured goods alongside effective liquidity management and proper anchoring of market yields to the Monetary Policy Rate.
“In all, we stress that failure to stem the surging inflation tide in the near term would result in a contagion financial sector crisis and by extension, derail other segments of the economy from the growth path, given banks’ pivotal role as an economic bridge between the supply and demand segments of the economy,” he said.
Between policy and nature
However, in a chat with newsmen in Abuja on the latest NBS figures, Director of Corporate Communication at CBN, Dr. Isa AbdulMumin, expressed optimism that the low rate of increase in the average price level in October compared to September 2023, was a pointer to the fact that the bank’s monetary policy stance to tighten rates and its money market reforms were yielding the desired result.
According to him, available statistics showed that the first indication of deceleration in prices was recorded in September and further reforms in the money market, which commenced in October, had accelerated prices as indicated by the substantial drop in month-on-month changes recorded in October.
“Moderation in month-on-month changes in prices observed in the headline, food and core components of the consumer basket followed reforms in the money market and relative stability in the FX market,” he added.
But analysts at Cordros Research attributed the moderation in food inflation to the seasonal increase in food supplies in line with the main harvest season, as the harvested food crops reach both the rural and urban markets. They added that the decline in global food prices had started to filter into domestic food prices.
They said: “We expect the main harvest season to have a feed-through impact in improving food supplies in November, albeit not large enough to temper food prices relative to the prior year significantly. Notably, we expect a limited and below-average increase in food supplies as we understand that the prolonged dry spells during the planting season in the North, delays in the onset of rainfall and increased levels of banditry and kidnapping to have likely limited the increase in food supplies from the primary harvest season.
“In addition, we anticipate an increase in the demand for food produce ahead of the festive period in December amid still-high transport costs. Consequently, we forecast a 1.87 percent m/m increase in food prices in November, translating to 32.13 percent y/y.”