Nigeria’s March inflation beats analysts’ expectations

Nigeria’s headline inflation rose for the third straight month in March, largely driven by higher food and non-alcoholic beverages costs.

According to data released by the National Bureau of Statistics (NBS) on Saturday, the inflation rate quickened to a new 17-year high of 22.04 percent from 21.91 percent in the previous month.

On a year-on-year basis, the headline inflation rate was 6.13 percent points higher compared to the rate recorded in March 2022 which was 15.92 percent.

The headline inflation rate defies some analysts’ expectations who had projected it to drop in March.

“Our time series analysis and the result of the survey carried out in major markets in Lagos indicate that the official headline inflation rate could slow by 0.06 percent to 21.85 percent in March,” analysts at Financial Derivatives Company Limited (FDC), led by economist Bismarck Rewane, said in their latest Economic Bulletin report.

Analysts at Afrinvest Limited also projected a decline of 21.6 percent, driven by the high base-year effect on food inflation.

“Despite the persistent tailwinds, we project that the headline rate would decline to 21.6 percent year-on-year in March, driven by the high base-year effect on food inflation and the weak industrial activities’ impact on the core inflation sub-component,” they said.

Damilare Asimiyu, senior analyst at Afrinvest, said a lot of analysts estimated the inflation rate would moderate last month at least a bit before the country would begin to see a sharp increase in April. “So it is a negative surprise which is very bad for the outlook.”

A breakdown of the NBS report show that food and non-alcoholic beverages (11.42 percent) contributed the most rise in the headline index, followed by housing, water, electricity, gas and other fuel (3.69 percent), clothing and footwear (1.69 percent), transport (1.43 percent), and furnishings, household equipment and maintenance (1.11.percent).

Others are education (0.87 percent); health (0.66.percent); miscellaneous goods and services (0.37 percent); restaurant and hotels (0.27 percent); alcoholic beverage, tobacco and kola (0.24.percent); recreation and culture (0.15 percent) and communication (0.15 percent).

“With the post elections bounce from clarity on Nigeria’s political transition as well as the easing of the cash crisis, a lot of deferred transactions are being fulfilled,” Ikemesit Effiong, head of research at SBM Intelligence, said.

He said all these explain why most of March’s price increases were recorded in food and essential shopping.

Food inflation, which constitutes 50 percent of the inflation rate, rose to 24.46 percent in March from 24.35 percent in the previous month. The food inflation rate for March was 7.25 percent points higher compared to the rate recorded in March 2022 (17.20 percent).

Core inflation, which excludes the prices of volatile agricultural produce, stood at 19.86 percent on a year-on-year basis; up by 5.94 percent when compared to the 13.91 percent recorded in March last year.

“Inflation at 22 percent destroys consumers’ incomes because prices are outstripping income growth by more than three or four times,” Ayorinde Akinloye, an investor relations analyst at Seplat Energy Plc, said.

He said coupled with unemployment rate which is projected to be as high as 40 percent, gives a recipe for disaster particularly for consumer spending.

“The country is laying the grounds for a recession in the coming years because if consumers are not spending enough, it will cause a significant drag on the manufacturing and services sector which would drive down economic activities and ultimately economic growth,” Akinloye added.

Last year, the World Bank said Nigeria’s accelerated inflation growth had eroded the N30, 000 minimum wage by 35.5 percent and widened the poverty net with an estimated five million people in 2022.

In its latest Nigeria Development Update report, the international organization, said the higher inflation in 2022 is estimated to have pushed an additional five million Nigerians into poverty between January and September 2022, mainly through higher prices of local staples- rice, bread, yam, and wheat, especially in non-rural areas.

“Between 2020 and 2022, for instance, the inflation shock has pushed an estimated 15 million Nigerians into poverty.”

The report highlighted that the minimum wage, which was $82 in 2019, had dropped to $26. “Consumer price inflation had heightened, making it one of the highest in the world.”

At the Central Bank of Nigeria (CBN), Monetary Policy Committee (MPC) meeting in March, Godwin Ememfiele, governor of CBN, said it will continue tightening the Monetary Policy Rate, albeit moderately, until the differential between inflation and key rate at 18 percent is closed.

“The MPC observed the continued upward risk to price development around expectations on the removal of the PMS subsidy; rising prices of other energy sources; continuing exchange rate pressure; and uncertain climatic conditions.

“These in the view of members, provides a compelling argument for an upward adjustment of the policy rate, albeit, less aggressively,” he said.

Read also: Inflation: Permanent or transitory?

Since May last year, the CBN has hiked interest rates six times in a bid to curb surging inflation in Africa’s biggest economy.

Damilola Adewale, a Lagos-based economic analyst, said the MPC framework now seems ineffective in driving down food prices.

“It is clear that the inflation we are seeing is more of a supply side issue than demand one. And the MPC framework does not speak to the supply side constraints. It is more of a demand side approach which is a mismatch,” he said.

According to Adewale, despite the hikes we have seen in interest rates all through last year, inflation keeps treading upwards.

And with the planned removal of petrol subsidy in June, there are expectations that the country’s inflation rate would surge further.

Last year, Zainab Ahmed, minister of finance, budget and national planning, said the federal government would commence a phased removal of petrol subsidy from June 2023.

She said provision for the removal of the subsidy had already been made in the 2023-2025 Medium-Term Plan.

Adewale said if subsidy is removed, fuel prices will notch higher. “Some analysts estimate that if oil prices trade above $80/barrel, fuel prices will be around N350 to N400 per litre which impacts transport, logistics, and other basic services.”