Market News

• Food inflation diverges, spikes to over 20.3% 

• Borno, Nasarawa data link rising food prices to logistics costs  

• Monetary authority may find comfort in declining core inflation

Despite a modest 50 basis point (bpts) decline in headline inflation to 15.43 per cent, the food segment, the most impactful category on ordinary citizens, rose sharply from 17.52 per cent to 20.31 per cent last month, the highest since last year’s August.

The figure is contained in the July consumer price index (CPI) released by the National Bureau of Statistics (NBS) yesterday.   The headline figure has fallen consistently since June, underscoring the gradual easing that followed the breather in the tension in the Middle East.   On the contrary, the conflict and its pass-through effect via higher energy costs have left the prices of food items on an uptrend, pushing the change to an 11-month high and mirroring the renewed squeeze in household income and overstretching fixed-income earners.    

While food inflation is heading to the pre-September 2025 level when the figure was hovering between 25 per cent and over 35 per cent, core inflation remained subdued at 14.97 per cent – its lowest since January 2025.   The stable run of core inflation may ease pressure on the monetary policy authority, which has been strained by the dilemma of dealing with a stubbornly high inflation rate without stifling the nascent economic growth.     Core inflation is the strongest link between consumption and money balances, which the monetary policy rate (MPR) and other tightening policy decisions seek to control. The Monetary Policy Committee (MPC) has kept the MPR at between 26.5 and 27.5 per cent in the past one year, while the transaction corridor has equally remained tight as it explored options within its policy limit to keep money supply growth at a manageable level and the inflation rate stable.   In response, money balances Y/Y growth as of June remains moderate at 13.7 per cent. It grew from N117.24 trillion to N133.25 trillion.    But money supply might not have fully accounted for the MPR pass-through effect. Commercial-interest rates have remained low, leaving the next growth of credit to the private sector at a single digit in the past year – from N76.13 trillion to N83.26 trillion as at June.   More than July data, August CPI data will arm the MPC with more current data for inflation gauging ahead of its September meeting. Yet, the July core inflation figure has strengthened, in the meantime, the perception that the disinflationary trend is consolidating.   

The July month-on-month (M/M) change in the food inflation segment, which highlights the current intensity of price pressure, stood at 5.56 per cent, the highest post-CPI rebasing figure the economy has posted.

The M/M figure has grown consistently in the past three months. It was 3.75 per cent in June and 2.98 per cent in May. Last month was the steepest growth in recent months.

Year-on-year (Y/Y) trend paints a similar picture, growing consecutively for six months. Since January, when it printed single-digit, the trend has remained uptick, more than doubling January’s 8.9 per cent rate and adding at least 90 basis points monthly.

Last month, it added 2.79 percentage points to take the headline figure to 20.31 per cent, a figure not seen in close to a year.

The recent changes suggest the food inflation momentum remains strong and that the trend direction could take time before it hits an inflexion point.   But the drivers of food inflation, as argued by the Chief Executive of the Centre for Promotion of Private Enterprise, Dr Muda Yusuf, and other notable economists, are structural, such as insecurity and cost-related factors such as logistics challenges, which would require fiscal interventions to address.   Earlier, stakeholders in the agriculture sector warned that the Federal Government-led food import programme would disincentivise local production and trigger a crawl-back on investment in farming.   Amid the steep drop in food prices earlier this year, some economists, including Yusuf, called for a price stabilisation mechanism, warning that while lower prices could ease consumer pressure, they would leave farmers with heavy losses and undermine food security.      

The downtrend of food prices was altered by the Middle East crisis that distorted 

supply chains and significantly increased logistics costs. July’s high food inflation might also be driven by seasonal impact and heavy rainfall that affected haulage from June.

A gradual entry into harvest season, which coincided with the dry season, may provide a counter-effect and see prices ease moderately in the coming months.

But economists said the government would need to address insecurity challenges in the north and other food production hubs to stimulate production and increase access.

Pump prices of diesel, a petroleum product used by logistics operators, have almost doubled since the end of February when the U.S.-Iranian conflict started, increasing the cost of haulage significantly over time.   Premium motor spirit (PMS) prices, which many vendors and traders use for distribution, have also increased by about 50 per cent since early March and further increase the retail costs of food items.

Apart from the wide divergence in the segments, the latest CPI report also showed significant disparity across sub-nationals in both headline and food CPI numbers.

Adamawa recorded a 33.03 per cent (over twice the national figure) while Yobe and Anambra states recorded 25.2 per cent and 24 per cent respectively.   At the bottom, headline inflation rate in Nasarawa, Kebbi and Borno states was 7.9, 9.1 and 9.1 per cent respectively.   Borno’s low headline inflation was fuelled by its negative food inflation, a possibility that highlights how logistics fuel inflation in the country. Transport adds little to the final prices of food in Borno, being a food basket state. Food inflation in Nasarawa and Kebbi, for similar reasons, was 6.9 per cent and 12.5 per cent in July.   But the transport cost factor may have been deflated by the Adamawa, Katsina and Zamfara states’ food CPI. The three states came top on the index at 51.4, 30.8 and 30.7 per cent in the order mentioned.

The disparity across sub-nationals raises questions on how much a single national CPI mirrors the cost-of-living improvement or deterioration in the country, even though the NBS cautions against state-level comparisons owing to consumption expenditure divergence.