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Business News of Monday, 16 January 2023


Explained: Why Nigeria’s December inflation rate will be hotter

Inflation Inflation

The National Bureau of Statistics (NBS) is set to release the official consumer price index (CPI) report, which measures the level of inflation in the country for the month of December 2022, and experts have weighed on the possible direction of the highly anticipated report.

In the previous month, Nigeria’s inflation rate hit a new 17-year high of 21.47% as a result of the sustained energy crisis, surge in food prices, and exchange rate quagmire. According to the NBS, the increase in the inflation rate was driven both by the core and the food basket.

Specifically, the core inflation rose to 18.24% in the month of November from 17.76% recorded in the previous month, while the food inflation rate galloped to 24.13% compared to 23.72% recorded in the prior period.

Further checks reveal that the increase in the food index was driven by an increase in the price of bread, tubers, and cereals. On the other hand, the surge in the price of gas, liquid fuel, air transport, and other energy products drove the rise in the core index.

The Nigerian economy was befuddled by a contingent of economic dilemmas, one of which is the rising inflation rate, and depreciating exchange rate amidst a crunch in FX value, which saw the Naira trade against the US dollar as high as N900/$1. This is coupled with socio-economic issues ravaging the African giant.

Exchange rate appreciated: Despite the high volatility in the exchange rate market in 2022, the naira witnessed some level of relative stability during the festive period, attributed to increasing inflows from diaspora Nigerians who travelled into the country and those who sent remittances to their relatives and friends.

According to data tracked by Nairalytics – the research arm of Nairametrics, the exchange rate at the black market appreciated by 4.21% in the month of December 2022, closing at N736/$1 on the last day of the month compared to N767 recorded as of the previous month.

Although, the exchange rate at the parallel market depreciated by 3.51% to end the month at N461.5/$1, forex turnover increased in contrast to the previous month. Specifically, a total of $3.03 billion was traded at the official market in the month against the $2.84 billion that exchanged hands in November.

The foreign reserve however lost $30.17 million in the same month to the continuous intervention by the CBN in the FX market in other to defend the local currency.

Energy prices: Nigerians had to grapple with sustained fuel scarcity across major areas of the country in the review month, which is almost a usual custom to experience fuel scarcity price hikes during festivities.

Nairametrics reported fuel scarcity across some notable locations like Lagos, Abuja, Calabar, Kaduna, Kano Oyo, Ogun, and Port Harcourt forcing Nigerians to stay in long queues to buy fuel at the regulated prices, while some other filling stations sold petrol for as high as N400 per litre.

Although, the long queues have been attributed to the sustained fuel subsidy payment, which is set to be discontinued by the middle of the year and could likely drive the price of fuel per litre to as high as N400 to N500 per litre.

During the month, electricity distribution companies also increased electricity prices for their Band A &B customers by as much as 16% from what it was in July.

CBN actions: It is worth noting that the Central Bank of Nigeria has tweaked the monetary tools within its ambit in other to tame the high inflation rate.

Some of the policy direction directed at curbing the inflation rate includes increasing the benchmark interest rate to a record high of 16.5%, reducing the Cash Reserve Requirement ratio to a minimum of 32.5% as well as reducing Over-The-Counter withdrawal and redesigning of the Naira.

Why this matter: CPI report is a monthly report, which gives an indication of the living standard and the level of hardship that the people living in the geographical region experience.

The inflation report in Nigeria, helps citizens and investors understand how fast the purchasing powers of citizens are being eroded, especially in an economy with limited investment opportunities.
Nigerians and analysts alike will eagerly await the release of the document as the Bureau is set to publish the report later today.