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Research

An uptick in the Price of Food and Non-Farm Produce, drive Nigeria’s Inflation Up to 19.64% in July 2022.

The Consumer Price Index (CPI), which measures inflation, rose by 19.64% Year-on-Year (YoY) in Jul’22. This is 1.04% and 2.26% higher than the rate recorded in Jun’22 (18.60%) and Jul’21 (17.38%). The headline inflation spiraled upward, in line with the previous month’s hike. The increase recorded in July 2022 was on the back of price acceleration in the food and core sub-indices, representing the highest rate recorded since September 2005.

Also, on a month-on-month (MoM) basis, the Headline Index increased to 1.817% in Jul’22; this is a 0.001% increase from the rate (1.816%) recorded in the previous month (Jun’22). The marginal increase in monthly headline inflation was driven mainly by the rise in energy and several other non-food items.

Graph showing inflation figure for Nigerian in 2022

The Food sub-index rose by 22.02% YoY in Jul’22 compared to 20.60% in Jun’22 and 21.03% in Jul’21. However, on a MoM basis, the food inflation stood at 2.04% in Jul’22, a 0.01% decline from 2.05% recorded in Jun’22. The marginal decline was on the back of a slowdown in global food prices (notably wheat and vegetable oil prices) as announced by the United Nations’ Food and Agriculture Organization despite existing legacy drivers persist.

This rise in the food index was caused by increases in the prices of Bread and cereals, Food products n.e.c., Potatoes, yam, and other tubers, meat, fish, oil, and fat. 

Fresh Vegetables

The “All Items less farm produce” or “Core Inflation,” which excludes the prices of volatile agricultural produce, surged by 16.26% YoY in Jul’22, up by 0.51% and 2.54% when compared with Jun’22 (15.75%) and Jul’21 (13.72%) rates. Similarly, on a MoM basis, the core sub-index increased to 1.75% in Jul’22, up by 0.19% compared with 1.56% recorded in Jun’22.

The highest increases were recorded in prices of Gas, Liquid fuel, Solid fuel, Cleaning, Passenger transport by road, Air, Garments, Cleaning, Repair, and Hire of clothing. 

Graph showing All items less farm produce as drivers of Nigeria high inflation

Our Earlier Prediction

In line with our prediction of a sustained uptick in inflation, the inflation rate for July 2022 was exacerbated by the ripple effect of the Russian-Ukraine conflict (resulting in a surge in food and energy prices), which gave rise to the food and core sub-indices. Nigeria’s inflation continues to test new historical highs (Annual Headline inflation is at its highest since September 2005,

Yearly Food Inflation revisited highs last seen in Mar ’21 while YoY Core Inflation is fast approaching its 6-year peak). Despite the marginal decline in monthly food inflation, reflective of the global downtrend in food prices, the local economy’s legacy inflationary drivers (FX crisis, among others) persist. Notably, the perennial FX crisis held sway as the I&E Window saw a 1.51% deprecation in Jul ’22, falling to N427.45/$; the parallel market rate also crossed over N700/$.

Kumasi, Ghana: 21st July 2016 – piles of yams for sale in a market in Kumasi, West Africa

While the Monetary Policy Committee (MPC) hiked the interest rate by an additional 100bps in Jul ’22 with the hope of improving net foreign inflows and taming the rising inflation, the aftermath proved immaterial as all inflation indices accelerated except monthly food inflation, in sync with our opinion that rate hikes may not address the rising inflation as the supply-driven inflation is more impacted by structural issues (requiring synergy of fiscal and monetary policies), evidenced by legacy drivers like food production shortages, insecurity issues, and abysmal transportation infrastructure.

Our Prediction for August 

In the coming month, we expect a similar trajectory in the inflation rate on both the food and core segments. Despite improvement in global food and energy prices due to increasing food supply from Russia and Ukraine, alongside the impact of the southern green harvest. Our expectation is largely hinged on the local food prices that remain susceptible to possible upswings in global fertilizer prices and uncertainties around the Russian-Ukraine conflict.