Since February 2022, Nigeria’s consumer price index has stayed elevated due to a number of factors such as food shortages, increases in energy cost, multiple currency devaluations, trade restrictions and a few others.
Recent policies such as the removal of fuel subsidies, the unification of the exchange rate at the various official windows and the implementation of new import duties and taxes from the Finance Act are expected to keep the nation’s headline inflation rate high. As of July 2023, the headline inflation rate advanced by 24.08% y/y driven by increases in the food inflation rate which increased by 20.47% y/y and the core inflation which advanced by 26.98% y/y in the period.
Food insecurity has been a cause of concern as the challenges of insurgency, low investments in Agriculture, low mechanized farming, inadequate food storage methods and poor transport infrastructure have suppressed supply while demand for food products in a population dense country remains high.
The five-year tax break provided by the Federal Government to stimulate investments in the agricultural sector is yet to improve output in the sector. More so, the price levels of food products have risen significantly over the years as all of the factors mentioned above have either directly affected prices or have indirectly affected food prices through increased transport cost.
The major drivers of the continuous growth in core inflation are increases in the prices of housing, water, electricity, gas and other fuels. Recently transport costs have been adversely affected by the deregulation of Petroleum Motor Spirit, causing the price of fuel to surge by c.159.12% to an average of N617.00/litre from an average price of N238.11/litre as at May 2023.
The N5bn palliative approved to by the FGN to lessen the impact of the rise in fuel price on consumers will likely do little as the price of crude oil maintains its northward position in the international market. Moreover, the Discos have been clamouring for an increase in electricity tariffs in line with current realites. These factors will likely keep core inflation high in the short to medium term.
