Nigeria's Inflation Soars as Commodity Prices Remains Resistant to Decline

According to data from the National Bureau of Statistics, Nigeria's headline inflation continued its upward trajectory in March, reaching a 28-year peak of 33.2%. This marked a significant increase of 1.5% compared to February's rate of 31.7%. Despite the central bank's aggressive monetary policy rate hikes, totaling 600 basis points so far this year, and the resulting appreciation of the Naira, inflation remained high. This persistence can be attributed to the effect lag of monetary policy, which is the time lag between the implementation of policy measures and when the impact is being felt. One factor contributing to this delay is the tendency for commodity prices to be sticky downwards as manufacturers and traders typically adjust prices only when they are confident in the stability of the Naira, considering replacement costs. The good news is that month-on-month inflation declined by 0.10% to 3.02%, following four consecutive months of increase. This suggests that prices are likely to be more responsive to the appreciation in the currency in the near term. Hence, headline inflation is likely to peak in Q2’2024 and begin to decline in the second half of the year.

Food inflation hits 40% - Nigeria among the top 5 countries with the highest food inflation rate

In March, Nigeria witnessed a surge in its food inflation rate, surpassing the 40% mark to reach a record high of 40.01%, up from 37.92% in February. This escalation can be attributed to persistent security challenges and elevated logistics costs, among other factors. Presently, Nigeria stands as the fourth country in Africa with the highest food inflation rate, trailing behind Zimbabwe (84.4%), Egypt (50.9%), and Sierra Leone (49.82%). According to the National Bureau of Statistics (NBS), key commodities experiencing significant price hikes include garri, millet, akpu, yam tuber, water yam, dried fish, sardine, mudfish dried, palm oil, vegetable oil, beef, coconut, watermelon, Lipton tea, bournvita, and milo. Notably, most of these items are locally produced with no direct import content, highlighting the impact of the planting season, substitution effect, security challenges, and higher logistics costs. The continued upward trend in commodity prices has eroded the purchasing power of consumers, making it challenging for many households to afford daily meals, thereby impacting overall health and well-being. The Cost of a Healthy Diet (CoHD), representing the most economical combination of locally available items meeting globally recognized food-based dietary guidelines, surged by 9.32% to N938 in February from N858 in January.

Core inflation climbs to 25.9% in March

Core inflation, representing inflation excluding volatile items such as agricultural products and energy costs, saw upticks both annually and monthly. On a year-on-year basis, it climbed by 0.77% to 25.9%, while on a month-on-month basis, it rose by 0.37% to 2.54%. Price hikes were observed in road transport fares, rental fees, medical charges, and pharmaceutical expenses. While core inflation has maintained its upward trend, the yield on the 365-day treasury bills declined to 20.7% at the last auction, widening the negative real rate of return to 5.2%.

Higher inflation – Possible Policy response

The MPC is scheduled to meet again next month (May 20/21) and one of the major considerations will be the elevated inflationary pressures. We expect the inflation data for April to be released before the meeting and expectations are that inflation will increase further but at a slower pace as commodity prices become more responsive to the appreciation in the value of the currency. Hence, the committee will most likely leave the monetary policy unchanged.