19 July 2016, Lagos — Nigerian inflation accelerated to the highest rate in almost 11 years in June, complicating the task of the Central Bank of Nigeria, CBN, in an economy which is at risk of contracting this year.
The inflation rate in Nigeria’s economy increased to 16.5 percent from 15.6 in May, the National Bureau of Statistics said yesterday. That’s the highest rate since October 2005, according to data on the CBN’s website.
Prices rose 1.7 percent in the month. Nigeria imports at least 70 percent of its refined fuel, despite pumping 1.6 million barrels of crude a day in June, according to the International Energy Agency, and faced fuel shortages as retailers struggled to get foreign currency to buy products during a 15-month naira peg that was removed last month.
The currency’s official exchange rate weakened to more than N280 per dollar, compared with the fixed rate of N197-199, and the naira trades at around 360 on the black market, increasing prices for consumers. National Bureau of Statistics in a statement, yesterday, said: “In June, the Consumer Price Index (CPI), which measures inflation, continued to record relatively strong increases for the fifth consecutive month.
“The Headline index increased by 16.5 per cent (year-on-year), 0.9 per cent higher from rates recorded in May (15.6 per cent). While most COICOP divisions, which contribute to the Headline index, increased at a faster pace, the increase was, however, weighed upon by a slower increase in three divisions: Recreation & Culture, Restaurant & Hotels, and Miscellaneous Goods & Services.
“Year-on-year, energy prices, imported items and related products continue to be persistent drivers of the core sub-index. The core index increased by 16.2 percent in June, up by approximately 1.2 percent points from rates recorded in May (15.1 percent). “During the month, the highest increases were seen in the electricity, liquid fuel (kerosene), furniture and furnishings, passenger transport by road, and fuels and lubricants for personal transport equipment.
“While imported foods continue to increase at a faster pace, the food sub-index, on the aggregate, increased, albeit at a slower pace in June relative to May. The index increased by 15.3 percent (year-on-year) in June up by 0.4 percent from rates recorded in May. The index was weighed upon by a slower increase in the vegetables and ‘sugar, jam, honey, chocolate and confectionery’ groups.
“Month-on-month, the Headline index has moved in a sideways fashion since February, the first month of a pronounced increase in rates this year. Specifically in June, the index increased by 1.7 per cent, lower by roughly 100 basis points from rates recorded in May.” According to Babajide Solanke, an analyst at FSDH Merchant Bank Ltd, “inflation will continue to rise because the driving factors are still there, but there should be a slowdown in the subsequent months.
“Inflation may not necessarily cause monetary policymakers to increase rates because that will hurt growth. They may choose to use other monetary instruments to tighten liquidity.” The naira weakened 2.3 percent to 291 per dollar by 3:54 p.m in Lagos. The official exchange rate needs to move closer to that on the black market in order to boost investor confidence, Olusegun Sotola, head of research at Lagos-based Initiative for Public Policy Analysis, said by phone.
That would bring money into Nigeria and reduce the effect of inflation, he said. The average price for a liter (0.26 gallon) of gasoline was N148.5 ($0.52) in June, one percent less than in May, according to a separate report from the statistics bureau. The June gasoline price was 32 percent higher than a year earlier. Food prices rose 15.3 percent in June from a year earlier, compared with 14.9 percent in May.
Urban and Rural indices
The highest increases were in the costs of fish and meat, fruit and vegetables and bread and cereals, the statistics office said. “Year-on-year, both the Urban and Rural indices increased albeit at a faster pace in June.
The Urban index rose by roughly 100 basis points from 17.1% in May to 18.1% in June, while the Rural Index increased by 0.7% points from 14.3% in May to 15.1% in June. On a month-on-month, basis both the Urban and Rural indices increased at a slower pace in June. The Urban index increased by 1.8% during the month, 120 basis points lower from 3.0% in May. In addition, the Rural index increased by roughly 1.6% in June, 90 basis points lower from 2.5% in May.
“The percentage change in the average composite CPI for the twelve-month period ending in June 2016 over the average of the CPI for the previous twelve-month period was 11.4%, higher from 10.7% recorded in May. The corresponding twelve-month year-on-year average percentage change for the Urban index increased from 11.2% in May to 11.9% in June, while the corresponding Rural index also increased from 10.4% in May to 10.9% in June.
“While the Food Sub-index increased at a faster pace (increasing from 14.9% in May to 15.3% in June) driven by imported products and other food groups, the rate of increases in some food groups in particular; Vegetables and “Sugar, jam, honey, chocolate and confectionery” groups slowed, weighing on the index. Over the first half of the year, the Food index averaged 13.0% (year-on-year), up by 3.5% points from 9.5% in the corresponding period in 2015. On a month-on-month basis, the Food sub-index slowed by roughly 1.1% points from 2.6% in May to 1.4% in June.
On a month-on-month basis, the highest price increases were recorded in the Fish, Meat, Bread and Cereals, and Fruits groups. The average annual rate of change of the Food sub-index for the twelve-month period ending in June 2016 over the previous twelve-month average was 11.7%, 0.5% points from the average annual rate of change recorded in May (11.2%).
All items less farm produce
“The “All items less Farm Produce” or Core sub-index increased by 16.2% in June (year-on-year), up approximately by 1.2% points from 15.1% recorded in May. The Core sub-index has increased at a faster pace for five consecutive months. Over the first six months of the year, the Core sub-index increased by 12.8%, up 5.2% points from rates recorded in the corresponding period in 2015.
Highest price increases
On a month-on-month basis, after a brief uptick in May, the rate of increases in the Core sub-index continued to slow in June. The index increased by 1.8%, lower by 0.9 points from rates recorded in May. In June, on a month-on-month basis, the highest price increases were recorded in Motor cars, Electricity, Solid Fuels, Fuels and Lubricants for Personal Transport Equipment groups amongst others. The average twelve-month annual rate of rise of the index was recorded at 10.9% for the twelve-month period ending in June 2016, roughly 0.7% points higher from the twelve-month rate of change recorded in May (10.2%)”.
*Omoh Gabriel – Vanguard