Inflation in Nigeria hit a 17-year high of 20.5 per cent in August, driven by soaring prices of food, diesel and a weakened currency, data released by the statistics agency on Thursday showed.
Nigeria has been experiencing double-digit inflation since March 2016, but the situation has been exacerbated by a chronic shortage of dollars and global pressure on prices because of the war in Ukraine.
The National Bureau of Statistics said food inflation in August was 23 per cent, up from 22 per cent in July, on the back of an increase in the cost of essentials such as bread, cereals, meat and other items. The rise, the seventh consecutive of the year, follows July’s 19.6 per cent.
Lagos-based Financial Derivatives Company said in a note that “the combined effects of insecurity, global supply disruptions and higher logistics costs are still taking a toll on general prices”.
While food prices have declined in the wake of an agreement between Russia and Ukraine over grain supplies, a weaker naira has meant that Nigeria has not benefited, FDC said.
The Nigerian currency has depreciated by almost 25 per cent against the dollar since the start of the year. Core inflation, which excludes food and energy prices, has risen to 17.2 per cent as the depreciating currency and high transportation costs take their toll.
Nigeria’s central bank has increased interest rates by 250 basis points to 14 per cent since May. Analysts say an increase of 50bp could be implemented at the bank’s next monetary policy committee meeting on September 26.
But Pieter Scribante, of Oxford Economics Africa, an advisory group, said an interest rate rise was unlikely to be effective in tamping down inflation. “Inflation is being driven by supply-side factors like higher input costs and food shortages which limits overall policy effectiveness of higher interest rates,” said Scribante, who predicted that inflation will peak in the fourth quarter of 2022, with a tapering off expected only next year.
Nigeria’s economy relies on US dollars to foot import bills and a chronic shortage of the greenback has adversely affected prices. Oil receipts contribute almost 90 per cent of the country’s foreign exchange earnings.
Nigeria, however, has not benefited from the oil price boom caused by Russia’s full-scale invasion of Ukraine. Rampant oil theft has left a dent in Nigeria’s coffers, estimated by the state-owned oil company to be $1bn in the first quarter of the year. In August, crude oil production was 1.1mn barrels a day, far below Nigeria’s 1.8mn Opec quota. High oil prices have also meant the government is paying more for the petroleum subsidies enjoyed by its citizens.
The central bank has introduced tight currency controls as it seeks to ration dwindling reserves. Businesses such as airlines have struggled to repatriate revenue from ticket sales in Nigeria. Importers and other businesses without access to dollars from the bank have been forced to source dollars from the black market where the naira trades freely against the dollar at almost 50 per cent higher than the official rate.