Due to recent government actions, such as the withdrawal of gasoline subsidies and the depreciation of the naira on the FX market, investment analysts have anticipated that the headline inflation rate will exceed 23 percent.
The Consumer Price Index (CPI) report for May 2023 from the National Bureau of Statistics (NBS) reveals that headline inflation increased year-over-year by 0.19 percentage points to 22.41 percent in May from 22.22 percent in April.
This is Nigeria’s highest inflation rate since September 2005, and it has been inside the 22 percent range for three months in a row.
Recall that the Central Bank of Nigeria, CBN, floated the foreign exchange rate two days ago, causing a 40% depreciation of the local currency, the Naira, to N664.04/$ in the official market, while the federal government recently removed the fuel subsidy, leading to an increase in the pump price per liter of over 100%.
The NBS report stated: “In May 2023, the headline inflation rate increased to 22.41 percent relative to April 2023 headline inflation rate which was 22.22 percent.
“Looking at the movement, the May 2023 inflation rate showed an increase of 0.19 percent points when compared to April 2023 headline inflation rate.”
The Bureau also said that due to rises in the cost of oil and fat, yam and other tubers, bread and cereals, fish, potatoes, fruits, meat, vegetables, and spirit, food inflation increased to 24.82 percent in May from 24.61 percent in April.
Commenting on the development, Cowry Asset Management Plc, in its inflation update report for May, said: “Over time, the Nigerian government, through the monetary authority, has taken several measures to tame inflation, including raising interest rates, devaluing the naira, and subsidizing the prices of some essential goods.
“However, these measures have proved abortive and unsuccessful in bringing inflation under control.
“Notwithstanding these efforts, the new administration has hinted at the need for interest rate moderation in a bid to increase investment and consumer purchasing power.
“We note that this move will bring about a further spike in the rate of inflation.
“Also, CBN’s recent decision to float the naira will bring about further depreciation of the naira, while we expect to see the effect of the current subsidy removal by the new administration on price pressure and economic activities.
“The resultant effect of this decision will be more expensive imports and upward inflation pressure.
“Meanwhile, we expect a further surge in the headline inflation index to 23.6 percent in June.”
In their Economic Bulletin for June, analysts at Financial Derivative Company, FDC, said:
“The full impact of the petrol price adjustment will be felt in the inflation numbers for June, which initial estimate is put at 25.2 percent.
“However, the price of diesel, which is the major fuel used by trucks for logistics, declined by 12.70 percent to N660/ltr in June from its peak of N756/ltr in May. This is expected to mildly ease inflation pressures. Another interest rate hike may be imminent.”
