Fuel price, flooding may drive inflation higher – Analysts
Ahead of Nigeria’s October inflation data by the Nigerian Bureau of Statistics, it has been projected that inflation will remain high, driven by elevated fuel prices, currency depreciation, and flooding which disrupted agricultural activities.
Researchers at Cowry Assets Management Limited said the inflationary pressure would remain high despite rate hikes by the Monetary Policy Committee of the Central Bank of Nigeria and the government’s zero-duty on selected food import policy.
In their weekly report, the analysts maintained that structural issues, such as supply chain inefficiencies and security concerns, have continued to limit the impact of the fiscal and monetary policies. They projected that the October inflation will hit 33.10 per cent.
“Our expectation for a 33.10 per cent CPI numbers for October is hinged on the impact of recent PMS pump price adjustments and flooding in some parts of the country as well as the recent reversal in the food index due to supply chain disruption on the back of insecurity challenges and currency depreciation. Also, the core index may remain elevated unless the fiscal authorities take decisive actions to manage high PMS prices and mitigate scarcity across the country.
“Without such intervention, there could be increased pressure on transportation costs, which will likely affect the headline inflation index further. The Monetary Policy Committee is also set to meet in a fortnight.
“At its September 2024 meeting, the committee implemented additional tightening measures, raising the Monetary Policy Rate by 50 basis points to 27.25 per cent and increasing the Cash Reserve Ratio for deposit money banks to 50 per cent and for merchant banks to 16 per cent, while leaving the other parameters constant.
“Cowry Research notes that while the Central Bank of Nigeria’s tight monetary policy may exert some downward pressure on inflation, structural challenges such as infrastructure deficiencies, high fuel costs, and logistical constraints continue to limit the impact of these measures. Addressing these underlying issues is critical if policy efforts are to effectively stabilise prices across Nigeria’s economy,” the weekly report said.
Nigeria’s inflation rate has fluctuated markedly in 2024, nearing a 30-year high. Inflation continues its upward trend, reaching 33.2 per cent in March, up from 31.7 per cent in February.
This persistent rise was primarily driven by steep increases in food and transportation costs following the removal of fuel subsidies and continued naira depreciation, compounded by insecurity and flooding in the agricultural belt of the nation.
By mid-2024, inflation peaked at 34.19 per cent in June, marking the highest level seen this year. A slight moderation followed in July and August, with inflation easing to 33.4 per cent and 32.15 per cent, respectively, aided by seasonal harvests that helped temper food prices.
However, September saw inflation climb again to 32.7 per cent, largely due to persistently high food costs, widespread flooding, and ongoing currency pressures.
This uptick was driven primarily by higher energy costs, with petrol prices rising from N980 to around N1,050 per litre in Lagos and even higher in other states.
It is being projected that these adjustments could push the headline index above 35 per cent by December.
Food prices, in particular, have played a substantial role in the elevated headline rate, with September’s year-on-year food inflation rising to 37.77 per cent, up by 25 basis points from August’s 37.52 per cent. Contributing factors include heightened insecurity, high farm input costs, and flooding across food-producing regions.
On a positive note, the core inflation, which excludes food and energy, slightly eased for the first time in ten months, declining from 27.58 per cent in August to 27.43 per cent in September, however, a reversal is projected as likely in October.
