Concerns as fuel price hike, weak naira dampen inflation outlook
17 September 2024 |
4:36 am
Though the inflation rate slowed to 32.15 per cent in August, stakeholders believe it is not yet over, going by new triggers like the recent spike in fuel price, depreciation of the naira and flood in many food-producing states.
• Bag of rice hits N95,000, beans N230,000
• N40,000 rice Initiative yet to take off in most states as Abuja residents groan
• NBS lists high cost of food as one of the main drivers of inflation in Nigeria
• Economists fault NBS figures, methodologies, insist not reflecting current economic reality
Though the inflation rate slowed to 32.15 per cent in August, stakeholders believe it is not yet over, going by new triggers like the recent spike in fuel price, depreciation of the naira and flood in many food-producing states.
Similarly, households continue to complain about dwindling incomes based on the amount spent on food, education, transportation and other basic expenses.
Access to food remains a source of concern for many households as the cost of basic food, especially staple foods such as rice and beans, has risen beyond the reach of average Nigerians.
According to the National Bureau of Statistics (NBS) yesterday, the Consumer’s Price Index declined to 32.15 per cent in August 2024 from 33.40 per cent in July 2024. On a month-on-month basis, the headline inflation rate in August 2024 was 2.22 per cent, which was 0.06 per cent lower than the rate recorded in the earlier month (2.28 per cent).
While it appears that Nigeria’s inflation is falling, albeit marginally, this drop has not brought significant changes to the prices of foods in the country.
Prices of food items such as garri, yam, palm oil, and yam flour, slowed in the last few weeks, as a result of the harvest of crops following rainfalls that resulted in flooding in some parts of the country. The price of tomatoes, onions and peppers are also receding as the rains intensify.
As of yesterday, the price of a basket of tomatoes hovered between N40,000 and N50,000 in Abuja as against N90,000 a basket about two months ago. The price of onions has also gone down to N90,000 per bag from N160,000 it was in May this year.
While the Federal Government has unveiled the N40,000 per bag of rice initiative, the programme is yet to take off in most states. The Guardian can confirm that the initiative began in Abuja yesterday with beneficiaries expected to present the National Identification Number (NIN) as a pre-condition for purchasing the rice, access to the venue was a problem as of yesterday.
Meanwhile, some experts have insisted that the inflation figures do not reflect the reality on the ground as exemplified by the continued rise in the price of food stuffs, especially staple foods.
According to them, the recent fuel hike, which currently hovers between N900 and N1300 per litre, depending on the states and the constant drop in the strength of the naira, against the dollar will trigger another spike in inflation by the next report.
Indeed, core inflation is now 32.15 per cent in August 2024 surpassing that of the previous year which stood at 25.80 per cent in August 2023. On month-on-month, 32.15 per cent is a reduction from 33.40 per cent it was in July 2024.
Despite the rising price of rice and beans, which are considered a staple food in Nigeria, the NBS puts food inflation at 37.52 per cent compared with August 2023, which was 29.34 per cent and month-on-month July 2024 which was 39.53 per cent.
The inflation figure also decelerated in the urban areas as it slowed to 34.58 per cent in August as against 35.77 per cent it was in July 2024. The inflation also decreased in the rural areas sliding to 29.95 per cent in August from 31.26 per cent.
Further analysis of the data showed that the inflation rate is highest in Bauchi at 46.46 per cent and lowest in Benue at 25.13 per cent in July. Although on a year-on-year basis, this is 8.18 per cent points higher compared to the rate recorded in August 2023, which was 29.34 per cent.
A breakdown of the report indicated that the headline inflation rate showed a decrease of 1.25 per cent points when compared to the July 2024 headline inflation rate. However, on a year-on-year basis, the headline inflation rate was 6.35 per cent points higher compared to the rate recorded in August 2023 when it was 25.80 per cent. Corroborating the rising costs of staple food, the NBS said one of the main drivers of inflation in the country remains the high cost of food.
According to the NBS, the rise in food inflation on a year-on-year basis was caused by increases in prices of bread, maize, grains, and guinea corn, among others, which are in the bread and cereals class; yam, Irish potatoes, water yam, cassava tuber, palm oil and vegetable as well as beverages like Ovaltine, milo, Lipton, etc.
Nigeria has witnessed a consistent rise in inflation over the last 16 months. The current downward trend is believed to be driven by the drop in some food items because of the harvest season.
Speaking on this new development, Prof Uche Uwaleke of the Nasarawa State University, Keffi, noted that the easing in the headline inflation rate is due chiefly to the moderation in food inflation occasioned by the harvest season. He said the drought reported in many parts of the North partly explained the high rate of food inflation in states like Sokoto and Kebbi.
“Also, note that the core inflation rate increased in August. What all these point to is that it is time for the CBN to recognise the real pressure points and shift some attention to how the fiscal authorities can be supported to boost food production beginning with a halt in MPR hike this month. The FG should intervene in the recent ‘oil price dispute’ between the NNPCL and Dangote Refinery to stem its negative impact on the general price level,” he stressed.
On his part, an economist, Kelvin Emmanuel, said the drop in inflation may be unsustainable, saying, “Unfortunately I do not think this drop can be sustained especially with the 36 per cent increase in the prices of premium motor spirit. NNPC adjusting the Recommended Retail Price (RRP) to reduce their impairment on crude oil swap deals is the sacrifice the government is making to draw down on debt that threatens Government-Owned Enterprises (GOEs) revenues.”
He argued that unless the fiscal framework for naira base crude oil sales springs up at a lower regulated price, there could be a jump in Premium Motor Spirit (PMS) pricing impacting the price of food, transportation, energy and other key metrics that form the Consumer Price Index (CPI) basket.
The Lead Director of the Centre for Social Justice (CSJ) Eze Onyekpere, agreed with Emmanuel, saying with the recent increase in fuel prices and the continued depreciation of the naira, this drop in inflation is not sustainable. He was quick to caution that further tightening is not the answer.
Eze enjoined the CBN to begin lowering the monetary policy rate to ease access to credit so that the productive sector can grow and unemployment will decrease.
Professor of Finance at the University of Nigeria Nsukka, Chuke Nwude, faulted the new inflation figures, stating that the numbers do not reflect the current economic reality.
According to Nwude, higher inflationary numbers were expected in August considering the sharp increase in the price of goods and services that happened within the period due to rumours of the new fuel pump price increment. He argued that although the hike in pump price was officially made public this month but noted that the rumours of the increment filtered into the open market before the announcement, which triggered a fresh hike in the cost of goods and services last month.
Nwude insisted that there is a problem with the NBS methodology, urging the bureau to update its methodology to conform to present realities. He pointed out that many families can no longer afford the necessities of life because commodities which were hitherto conceived as backup and alternatives are heading to the rooftop.
“The report is doctored, how can you claim that headline inflation moderated by 1.25 per cent where a bag of rice that was sold between N67,000 and N70,000 is now N80,000 even though some species are selling at N100,000 per bag, does it indicate that inflation is easing.
“In the energy sector, July PMS was sold at N700 per litre but by the end of August till now, see what is happening. A litre of fuel is now N1,300, how can this price moderate inflation, it will trigger inflation in the country.
“The exchange rate was about to moderate at N1,500 per dollar but it is almost N1,700 per dollar presently. So, what are the constituents’ parts of the calculations? People are handy with facts and figures of what is happening in the economy,” he said.
Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, said the marginal fall in inflation in August was expected, given the continued increase in the supply of some foodstuffs and unchanged prices of some other commodities, including electricity.
However, he stated that the September figures can be predicted to rise given expected new waves of price increases as a result of the new fuel price and continuous depreciation of the naira, in addition to other negative policy changes with consequent macroeconomic instability, typical of the current government stance.
An economist, Johnson Chukwu said the moderation recorded in the August inflation rate was due to a high base effect, following the harvest season, an indication that inflation was rising at a slower rate when compared to the corresponding period in 2023.
Chukwu stressed the need to improve the security situation in the Niger Delta region to boost crude production for the country to record a meaningful reduction in the inflation rate going forward.
President of the Association of Small Business Owners in Nigeria (ASBON), Femi Egbesola, regretted that the NBS data is a far cry from the realities on the streets.
He said market prices keep going up and are not coming down, “showing that inflation is not abating as claimed by the NBS. Probably, in the government’s hopes and dreams, it is coming down, but the reality says otherwise.”
He said if inflation is abating as claimed, it will be evident in the markets, particularly as fuel prices have caused inflation to soar even more. “The hike in fuel prices has further fueled the cost of doing business and for us in the real sector, we have been forced to increase the prices of goods to remain in business. This is not showing that inflation is slowing down in any way. ”
Questioning the parameters used in arriving at a slowing in inflation, he said it is not evident in the prices of any single item. He said they hope that the government interventions in the agricultural and food sectors as well as the transport and health sectors begin to yield fruits. He said if the interventions are as huge as projected, they expect to see some sort of disinflation shortly.
Economist and investment specialist, Dr Vincent Nwani, supported Egbesola’s view, saying inflation figures for the last two months are on parallel lines with market realities.
He said food costs, energy prices and other categories of costs are still trading up and wondered how the NBS arrived at their numbers, asking if they did a proper market survey or just calculated it on their computers. He added that about 65 per cent of things bought in the market are influenced by the exchange rate which has been galloping uncontrollably.
“Fuel is a strong factor that influences prices and before this recent general increase in fuel prices, fuel prices have been quite high across the country. This new fuel price has not been accounted for yet and I strongly believe that when they are, we will get a proper reality of things.” He insisted that the inflation rate released by the NBS does not reflect realities, adding that he is wary of their conclusion.
Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the economy should see more dis-inflation, especially as the country moves further into the harvest season, which will impact food inflation.
“Also, now that we are refining petrol locally, we expect the cost of petrol and diesel to drop. This however depends on if the NNPC can supply crude oil to Dangote under the Naira-to-Naira crude agreement. Crude oil prices are also dropping and hopefully, this will force a reduction in energy costs. Energy costs are a major driver of inflation and a reduction in energy prices would further force down inflation.” He added that if the importation of petroleum products drops, there should be an improvement in the apex bank’s intervention in the FX market.
“If we can use the FX used for importing petroleum products to strengthen our intervention in the FX market, we would surely see an improvement in exchange rate which would in turn affect prices as well.”
Urging cautious optimism, he said the economy can be hopeful about further reductions in the inflation outlook, adding, “Any improvement in energy costs and FX will impact positively on production and business costs.”
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