Inflation drop fails to reflect market realities

NIGERIA’S headline inflation decelerated to 32.14 per cent in August from 33.4 per cent in July, the second consecutive monthly decline after 19 months of persistent increases, per the National Bureau of Statistics. While this should send positive signals, the numbers fail to reflect consumers’ experiences as the punishing effects of rising prices continue to be felt by households.

Significantly, the reported cooling in inflation comes with the recent dramatic hike in petrol prices after weeks of prolonged scarcity that had seen pump prices jump up to N1,300 in some states.

According to the Consumer Price Index report released on Monday, the headline inflation rate further eased to 32.15 per cent relative to the July 2024 headline inflation rate of 33.40 per cent. The August 2024 headline inflation rate showed a decrease of 1.25 percentage points compared to the July headline inflation rate.

The drop was attributed to the seasonal decline in the rate of increase in the average prices of food crops including yam, Irish potatoes, water yam, cassava tuber, palm oil, and vegetables.
However, the latest data gives no comfort. Nigeria is still in a bad place. On a year-on-year basis, inflation rose to a 28-year high of 34.2 per cent compared with 22.8 per cent a year earlier. Food inflation in June was 40.87 per cent compared with 25.25 per cent recorded in June 2023.

The NBS noted that the August inflation rate was 6.35 percentage points higher than the 25.80 per cent recorded in August 2023, indicating a significant increase over the past year. Similarly, the average food inflation rate in August 2024 was 37.52 per cent on a year-on-year basis, which was 8.18 per cent points higher compared to 29.34 per cent recorded in August 2023.

Nigerians have seen a dramatic surge in the prices of food. A bag of rice sells for between N78,000 to N85,000, a small basket of tomatoes for N9,000, and a kilo of frozen chicken and turkey costs N4,500 and N6,500 respectively.
Transport fares have shot up with inter-state bus fares from Lagos to the East costing up to N30,000. Lagos to Abuja airfares average N150,000 one way.

Poverty has become more entrenched with 40.7 per cent of Nigerians expected to live below the poverty line by year-end per World Bank. Sustained pressure on the naira which has seen the currency trading at N1,540 per dollar compared with N460 in May 2023 and interest rates have been hiked to 26.75 per cent from 11 per cent in two years have compounded the woes of manufacturers.

Nigeria’s inflation rate is staggering compared with South Africa at 4.4 per cent; Kenya at 4.4 per cent, Uganda at 3.9 per cent, Benin at 3.0 per cent, and Togo at 4.2 per cent. Ghana has managed to tame inflation to 20.4 per cent after five months of consecutive declines to the lowest rate since 2021.

The Federal government’s 150-day import duty suspension on major staples was expected to support a rapid decline in inflation but bureaucratic red tape has ensured that initiative remains stuck with Nigeria Customs Service still waiting for the list of import waiver beneficiaries months after the measures were announced.

Inflation has been driven by high energy costs due to the petrol subsidy regime and the floating of the exchange rate – two policies implemented by the Bola Tinubu administration that have been touted as painful but necessary measures to prevent economic disaster.

A thorough review of fiscal policy especially tariff cuts or suspension of critical imports is necessary to ease general price levels. Local refining must work to ultimately bring down petrol prices and pressure on the naira.

The overall business environment needs to improve to drive productivity, and wealth creation and mitigate scarcity.