Subsidy removal, naira fall push food inflation to 30.64%

Subsidy removal and naira devaluation pushed food inflation to 30.64 per cent in September, worsening inflationary pressures in the country.

The prices of food caused the Consumer Price Index to surge to 26.72 per cent in September, the National Bureau of Statistics disclosed on Monday.

This showed 0.92 percentage point increase from the 25.80 per cent recorded in August. The NBS revealed this in its CPI report for September. It said, “In September 2023, the headline inflation rate increased to 26.72 per cent relative to the August 2023 headline inflation rate which was 25.80 per cent.

“On a year-on-year basis, the headline inflation rate was 5.94 percentage points higher compared to the rate recorded in September 2022, which was 20.77 per cent. This shows that the headline inflation rate (year-on-year basis) increased in September 2023 when compared to the same month in the preceding year (i.e., September 2022).

“Furthermore, on a month-on-month basis, the headline inflation rate in September 2023 was 2.10 per cent, which was 1.08 per cent lower than the rate recorded in August 2023 (3.18 per cent).”

Despite the increase in inflation rate, the NBS claimed that the rate of increase in the average price level in September was less than the rate of increase in the average price level in August 2023.

Food and non-alcoholic beverages (13.84 per cent) contributed the most to inflation. This was followed by housing, water, electricity, gas and other fuel (4.47 per cent), clothing and footwear (2.04 per cent), transport (1.74 per cent), furnishings and household equipment and maintenance (1.34 per cent), education (1.05 per cent), and others.

The rise in September’s food inflation was driven by increases in prices of oil and fat, bread and cereals, potatoes, yam and other tubers, fish, fruit, meat, vegetables and milk, cheese, and eggs.

According to the NBS, the cost of living in Nigeria was currently highest in Kogi (32.95 per cent), Rivers (30.63 per cent), Lagos (30.04 per cent), and lowest in Borno (21.05 per cent), Jigawa (22.39 per cent), and Benue (23.22 per cent).

Food was most expensive in Kogi, Rivers, and Lagos. The NBS stated, “In September 2023, food inflation on a year-on-year basis was highest in Kogi (39.37 per cent), Rivers (35.95 per cent), and Lagos (35.66 per cent), while Jigawa (23.41 per cent), Borno (25.29 per cent) and Sokoto (25.38 per cent) recorded the slowest rise in food inflation on a year-on-year basis.”

While headline inflation remained below 30 per cent nationally, three states, including Kogi (32.95 per cent), Rivers (30.63 per cent), and Lagos (30.04 per cent), were already recording record-high inflation rates.

Commenting on the new spike in inflation rate, the Director/Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said, persistent inflationary pressures in the Nigerian economy was likely to accelerate poverty in the country with purchasing power continuing to slump over the past few months.

Economic growth, he explained, may remain subdued with the risk of stagflation heightening as key inflation drivers fail to slow.

He said, “These factors include the depreciating exchange rate, surging transportation costs, logistics challenges, forex market illiquidity, astronomical hike in diesel cost, climate change, insecurity in farming communities and structural bottlenecks to production. These are largely supply-side issues.”

Yusuf highlighted that elevated inflationary pressures could also worsen pressure on production costs, weaken profitability, erode shareholders’ value, and dampens investors’ confidence.

He added, “Tackling inflation requires urgent government intervention to address the challenges bedevelling production, productivity and insecurity in the economy. The real sector of the economy needs to be incentivised to ensure moderation of production costs.

“The government could tweak the tariff policies by granting concessionary import duty on intermediate products for industrialists. The same is true of investors in logistics sector.”

Other economists who spoke to The Punch lamented that the persistent inflation in the country worried that it might get out of hand and take Nigeria down the route of hyperinflation as Venezuela.

The Chairman of the Foundation for Economic Research and Training, Prof. Akpan Ekpo, in an interview with The Punch said, “The increase in the inflation figure is not surprising. We will feel the impact for a long time. We call it structural inflation.

“I hope we do not enter runaway inflation, where we cannot control anymore.” He lamented that as the supply of dollars depleted and the CBN no longer honoured some commercial banks’ requirements, and overseas began to reject letters of credit from the country, a currency crisis like Venezuela may ensue.

He noted that insecurity challenges continued to hamper food production in the country, affecting prices.

Ekpo added, “Something has to be done. Unfortunately, the policies of the current administration will not solve the problem. I’m not being pessimistic, it is what the data is saying.”

An economist with the School of Management and Social Sciences, Pan-Atlantic University, Professor Bright Eregha, also affirmed that the removal of fuel subsidy was a factor in the hike in transport inflation y-o-y.

He said, “For transport, that would be due to the removal of fuel subsidy which has made transport cost increase.

“The increase in clothing inflation is likely to have been from imported inflation because most pieces of clothing are imported. Don’t forget that the exchange rate is on the increase. It will be a contribution from the exchange rate pass-through effect to the domestic market price.”

While commenting on how the CBN could address the persistent rise, Eregha added that the Monetary Policy Committee, which couldn’t meet in September due to a change in management, may be aiming for an upward movement in interest rates in the country.

He said, “Don’t forget that their (CBN) primary aim is price stability, I’m sure, they will still want to adjust the MPR upward for the fact that they want to stabilise price. It is just that it has not been effective for a number of reasons. One of the major reasons is that what contributes to domestic price increases are not coming from the demand side, they are from the supply side.”

Eregha further noted that the recent lifting of the ban on the sourcing of forex for 43 items from the official market, by the CBN, would only work as far as the apex bank was able to sustain supply to the market. A development, he did not see as possible.

He added, “We have to be a bit sceptical. There is also a lot of backlog of those who want to repatriate their profit and they have not been able to provide that. This is because we don’t have a lot of reserves to be able to provide for those backlogs and supply the official market. This will bring a shortage in the official market and push up those who want to import their goods to the black market. As they go to the black market, the gap between the black and official markets will increase.”