The consumer price index which measures inflation increased by 13.22 per cent (year-on-year) in August 2020.
The National Bureau of Statistics disclosed this in its ‘Consumer Price Index August 2020’ report which was released on Tuesday.
This is 0.40 per cent higher than the rate recorded in July 2020 (12.82 per cent).
August figure recorded the highest since March 2018 which recorded 13.34 per cent inflation rate.
The composite food index rose by 16 per cent in August 2020 compared to 15.48 per cent in July 2020, according to the NBS.
It stated that the rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats and vegetables.
The Central Bank of Nigeria in its report titled ‘Monetary, credit, foreign trade and exchange policy guidelines for fiscal years 2020/2021’, on Friday, said headline inflation was expected to hover between 13.97 and 14.15 per cent at end-December 2020.
The banking regulator anchored the projection on supply shocks which may likely happen due to decline in economic activities globally as a result of COVID-19 pandemic that started in China in Q4, 2019.
It also attributed it to demand shocks emanating from domestic and international lockdowns; food supply shocks associated with non-tariff border protection; and effect of the implementation of the new budget and minimum wage.
On month-on-month basis, the NBS said the food sub-index increased by 1.67 per cent in August 2020, up by 0.15 per cent points from 1.52 per cent recorded in July 2020.
Increases were recorded in all classification of individual consumptions according to purpose divisions that yielded the headline index.
On a month-on-month basis, the headline index increased by 1.34 per cent in August 2020.
This is 0.09 per cent higher than the rate recorded in July 2020 (1.25 per cent).
The percentage change in the average composite CPI for the 12-month period ending August 2020 over the average of the CPI for the previous 12-month period was 12.23 per cent, representing a 0.18 per cent point rise from 12.05 per cent recorded in July 2020.
The urban inflation rate increased by13.83 per cent (year-on-year) in August 2020 from 13.40 per cent recorded in July 2020, while the rural inflation rate increased by 12.65 per cent in August 2020 from 12.28 per cent in July 2020.
On a month-on-month basis, the urban index rose by 1.42 per cent in August up by 0.15 from 1.27 per cent recorded in July, while the rural index also rose by 1.27 per cent in August, up by 0.04 from the rate recorded in July 2020 (1.23 per cent).
The corresponding 12-month year-on-year average percentage change for the urban index was 12.85 per cent in August.
This is higher than 12.66 per cent reported in July, while the corresponding rural inflation rate in August was 11.66 per cent compared to 11.49 per cent recorded in July 2020.
A Professor of Capital Market Studies, Uche Uwaleke, said the uptick in inflation rate in August was expected and would likely continue till the harvest season sets in.
“This is particularly so given the fact that the inflationary pressure is coming more from the food component which increased by as much as 16 per cent,” he said.
This situation, he said, was compounded by the border closure, increase in VAT, electricity tariffs, stamp duties and upward exchange rates adjustment by the CBN in order to ease the pressure on the forex market.
The recent increase in pump price of fuel presented further downside risks to inflation, he said.
He said, “There is also the insecurity challenge affecting the food belts of the country which partly explains the high rate of food inflation, at over 20 per cent, in a state like Kogi.
“The way forward to rein in inflation is for the government to tackle insecurity so that farmers could return to the farms and put in place a deliberate policy to promote large scale mechanised agriculture.”
The Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, said the mounting inflationary pressure was expected given the prevailing economic and business conditions.
He said, “We are experiencing sharp depreciation in the naira exchange rate which has significant implications for prices given the import dependence nature of the economy.
“Agricultural output is constrained by worsening insecurity in many farming communities around the country.
“Energy prices are putting enormous pressure on production and operating costs.
“Distribution costs remain high, driven by logistics challenges across the country.
“There are also climate change issues; these are the key drivers of inflation.”
The consequences of mounting inflationary pressures, he said, were worsening poverty conditions as purchasing power diminished, high operating costs and erosion of profit margins.
Head, Research Investment Management, Sigma Pensions Mr Wale Okunriboye said, “In line with our broad expectations, headline Inflation continued its uphill climb in August on account of higher food prices and to a lesser extent a pick-up in core inflation.
“The surge in food prices over August, usually the start of the main harvest for many crops in Nigeria, provides strong evidence that farming activity and domestic food supply chains were adversely impacted by COVID-19 restrictions earlier in the year.
“This suggests that agricultural output over the harvest period in Q4 2020 is likely to be below trend levels and points to higher food prices in coming months.
“Looking ahead, we see the quartet of higher electricity tariffs, increased fuel prices, continued naira weakness and an inadequate food harvest in September as driving further acceleration in inflation towards 14 per cent levels.”
He added, “As the source of this inflationary spiral has more to do with cost-push factors than demand-pull pressures, we think that Nigeria’s economic managers are likely to focus on supply side interventions than any adjustments to monetary policy over the near term.”
For investors, he said, the negative real returns on fixed income instruments was likely to accentuate the search for variable income instruments.
The acting Director-General, Manufacturers Association of Nigeria, Mr Abrose Oruche, said it was not surprising to economic watchers that inflation would continue to rise till December until a solution was found to the rising cost of production.
He said, “Fuel price had gone up and that is a major thing that both urban and rural people use.
“The market women have increased their price; the food price is still going up because the farmers are not going to farm because of insecurity situation and the foreign exchange is not there to import.
“The inflation is cost-push inflation and not money-push inflation; it is not about much money chasing few goods, but it is about the cost of production going up.
“Let us get the cost of production down and inflation will be down.”
To address inflation, he said forex has to be made available for importers especially the raw materials and that the operating cost like the energy cost also has to be reduced.
Speaking on rising food prices, he said, “That is critical because we spend most of our income on food, an average person spends almost 60 per cent on food, so if food is going up, that means it is a challenge to the economy, it means that whatever is earned by the civil servant is just being depleted.
“Government has to put in place a policy that will reduce the inflation rate.”
Inflation may continue to rise till December – CBN
The Central Bank of Nigeria on Tuesday said the country’s increasing rate of inflation over the past several months might continue to witness further increase till December this year.
In his address at the opening session of the 13th Annual Banking and Financial Conference in Abuja, the CBN Governor, Godwin Emefiele, said inflationary pressure persisted in the first and second halves of the year due to several factors.
This, he said, might continue till the end of this year, as he noted that in addition to the disruption to global and domestic supply chains as a result of COVID-19, inflation was exacerbated by the increase in Value Added Tax.
Other factors that raised inflation, according to Emefiele, include exchange rate adjustment and seasonal food supply shocks due to the onset of the farming season and other structural bottlenecks.
He said, “In any case we think that inflation may continue to tick upwards, maybe up till around October, November, December as we begin to see the positive effects of the harvest.
“But we are not comfortable by the fact that with the depreciation that we have seen in the currency this year, as well as the increase in price in energy for those who are wealthy and the manufacturing companies, that this will no doubt result in imported inflation.
“This is because our economy still remains somewhat significantly import dependent and so no doubt, this will further accelerate the level of inflation in the country.”
He told participants at the conference that inflation in July 2020 stood at 12.8 per cent, adding that the bank, however, expect inflation to begin to moderate towards the end of the fourth quarter, as the country approaches the harvest season.
This, he said, was along with the phased withdrawal on the restrictions of movement and other restrictions imposed as a result of COVID-19.