Headline inflation moderates to 32.15% in August

The National Bureau of Statistics (NBS) published its August CPI and inflation report on September 16. As anticipated, Nigeria’s headline inflation declined again, though more sharply than we had expected, dropping to 32.15% (compared to our forecast of 32.42%) from 33.4% in July. This marks the second consecutive monthly decline and the lowest inflation rate since March 2024. The continued moderation in the annual general price level was primarily driven by base effects and a robust harvest.

Month-on-month inflation also saw a slight reduction, falling to 2.22% in August from 2.28% in July, contrary to our prediction of an increase. This suggests that the positive effects of the harvest and a 150-day tariff suspension on key staples outweighed the disruptions and productivity losses from petrol shortages in August.

Inflation Breakdown

Food inflation declines further due to the harvest season

Food inflation continued to decline due to the ongoing harvest and the 150-day tariff suspension on major staples such as maize, rice, wheat, and cowpeas. Year-on-year food inflation fell to 37.52% in August (matching our forecast of 37.53%), down from 39.53% in July. Monthly food inflation also decreased by 0.10% to 2.37% in August from 2.47% in July. According to the NBS, the commodities with the slowest price increases were tobacco, tea, cocoa, coffee, groundnut oil, milk, yam, potatoes, cassava, and palm oil.

Core inflation rises amid currency depreciation and higher logistics costs

Core inflation, which excludes food and energy costs, increased in August as expected. Annual core inflation rose by 0.11% to 27.58%, aligning with our forecast of 27.59%, and monthly core inflation increased to 2.27% from 2.16% in July. This rise was largely due to the depreciation of the Naira and higher logistics costs. The Naira fell by 1.85% in the parallel market in August due to insufficient forex supply. Fuel shortages also reappeared, leading to productivity losses and increased petrol prices in the black market, which in turn led to a significant rise in transport fares. Initially, fares increased by over 100%, but resistance from commuters led to a revised increase of about 25%. However, a further hike in transport fares is likely as the NNPC releases its estimated pump price of PMS from the Dangote refinery. This will bring the total increase in the last two weeks to approximately 50%. The NBS noted the highest price increases in rents, road transportation, and medical services.

Rural-Urban Inflation

Urban inflation fell by 1.19% to 34.58% year-on-year in August from 35.77% in July, and the monthly index decreased by 0.07% to 2.39% from 2.46% in July. Rural inflation also decreased by 1.31% to 29.95% annually and by 0.04% to 2.06% monthly. The reduction in both urban and rural inflation is attributed to increased commodity supply from the harvest and the tariff suspension. The gap between urban and rural inflation widened to 4.63% from 4.51% in July, partly due to higher logistics costs and post-harvest losses.

State-by-state inflation

Benue State maintained its position as the state with the lowest inflation rate (25.13%), followed by Delta at 26.86% and Imo at 28.05%. In contrast, the highest inflation rates were seen in Bauchi (46.46%), Kebbi (37.51%), and Jigawa (37.43%).

Inflation expectations & impact on monetary policy

Headline inflation is expected to rise in September due to cost pressures. The NNPC has announced a new estimated pump price for petrol from the Dangote refinery, which will result in a total increase of about 50% in petrol prices over the past two weeks. This is anticipated to lead to higher logistics costs, reducing the benefits of the recent harvest. Although the sale of crude oil to the Dangote refinery in Naira is expected to begin in October, there remains uncertainty about the exchange rate for conversion, which will affect petrol pricing.

The Monetary Policy Committee (MPC) will meet next week to assess recent developments and consider future monetary policy. While the recent two-month decline in inflation is positive, the potential for a reversal in the coming months poses a significant concern for the committee. We expect the committee to take a cautious stance, maintaining the status quo on all monetary parameters while closely monitoring how the recent petrol price increases and other factors impact overall inflation.

Do you Know?

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