Headline inflation soars to 34.19% in June

The National Bureau of Statistics released the June CPI and inflation data today, revealing that headline inflation exceeded the 34% mark, reaching 34.19%. This figure is 0.24% higher than the 33.95% reported in May, marking the 18th consecutive monthly increase and the highest rate since March 1996 (a 28-year high). Beyond the continued increase in headline inflation, there is concern over the rise in month-on-month inflation to 2.31% (31.53% annualized) after three months of decline. Analysts had anticipated that inflation might peak soon due to the consistent decrease in month-on-month inflation. However, this reversal suggests that inflation risks remain high and inflationary pressures could persist for a longer period. On a positive note, the harvest season beginning in the third quarter is expected to increase commodity supply and help taper prices. Food inflation climbs to 40.87% on the back of seasonality and lingering structural issues

Year-on-year food inflation increased for the 18th consecutive month to 40.87% in June, up from 40.66% in May. The monthly food sub-index also rose to 2.55% from 2.28% in May. These persistent food price pressures are largely due to seasonality, heightened insecurity, higher logistics costs, and infrastructural deficits. The escalating cost of food has significantly strained household finances, leading to higher rates of poverty, hunger, and malnutrition. However, there is some positive news: the harvest season, expected to begin in the third quarter, should boost commodity supply and help reduce food prices. Additionally, the Federal Government has announced a 150-day duty-free period for importing key staples such as maize, husked brown rice, wheat, and cowpeas. This measure aims to lower the cost of food imports, increase supply, and reduce prices in the short term. Nonetheless, achieving sustainable food security requires addressing the underlying causes of food inflation by enhancing local production, resolving security issues in key agricultural areas, and creating a more resilient supply chain.

Core inflation increases by 0.36% to 27.4%

Core inflation, which excludes food and energy costs, increased by 0.36% annually to 27.4% in June. Monthly, it saw a slight uptick to 2.06% in June from 2.01% in May. This uptrend in core inflation underscores that inflation in Nigeria is influenced by more than just monetary factors. There are underlying structural issues contributing to inflation, and if left unaddressed, these factors will continue to hinder the effectiveness of monetary policy.

Rural-Urban Inflation

The year-on-year urban and rural inflation rates rose by 0.21% and 0.27% respectively to 36.55% and 32.09% in June. Both indices also increased on a month-on-month basis, rising to 2.46% and 2.17% from 2.35% and 1.94% in May. The urban-rural inflation gap fell to 4.46% from 4.52% in May.

State-by-state inflation

In June, the states with the lowest inflation rates were Borno (25.90%), Benue (27.52%), and Katsina (29.21%) while the states with the highest inflation rates were the usual suspects - Bauchi (43.95%), followed by Kogi (39.91%) and Oyo (39.15%). MPC – What to expect

The Monetary Policy Committee (MPC) is set to convene next week (July 22/23) to assess global and domestic economic trends and decide on the immediate course of monetary policy. A key focus will be on the ongoing inflationary pressures. Despite a slowdown in the rate of headline inflation, the recent uptick in month-on-month inflation poses a significant concern for policymakers, potentially prompting more hawkish committee members to advocate for sustained rate increases. The committee may opt to raise the monetary policy rate by 50-100 basis points.