Market News

BY  Nike Popoola and ’Femi Asu

Economic experts have identified the lingering insecurity challenges in food-producing parts of Nigeria as one of the major factors fuelling the surge in food inflation as the country’s inflation rate jumped to its highest level in more than three years.

Inflation rose to 15.75 per cent in December from 14.89 per cent in December, marking the 16th straight month of increases, data released on Friday by the National Bureau of Statistics showed.

The consumer inflation rate in December was the highest since November 2017 when it stood at 15.90 per cent.

The NBS said the composite food index rose by 19.56 per cent in December from 18.30 per cent in November.

“This rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish and oils and fats,” it added.

The core inflation, which excludes the prices of volatile agricultural produce, stood at 11.37 per cent in December, compared with 11.05 per cent in November.

The highest increases were recorded in prices of passenger transport by air, medical services, hospital services, shoes and other footwear, and passenger transport by road, among others, according to the NBS.

The Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Mr Johnson Chukwu, said the inflationary pressures were coming particularly from volatile food items.

He said, “We must recognise that the disruption we have had in the northern part of the country in terms of food production has a direct impact on food inflation.

“We should expect these pressures to continue in the next couple of months. We should expect that the price of diesel will further increase because crude oil price has moved up and exchange rate has also deteriorated.”

A professor of capital market at the Nasarawa State University Keffi, Uche Uwaleke, said the inflation rate for December was exacerbated by the lingering effects of border closure, increase in Value Added Tax, electricity tariffs and the pump price of fuel.

“Insecurity may have also accounted for why the food inflation was highest in a state like Edo. The rate of increase in urban inflation gives cause for worry. This may not be unconnected with the rise in rural-urban migration,” he said.

According to him, given that food inflation remains the major challenge, the inflation rate is expected to moderate this year following the intensification of the Central Bank of Nigeria’s interventions in agriculture and improvements in forex supply, the implementation of the 2021 agriculture budget and transport infrastructure, border reopening as well as improvements in security.

“It is important that the relevant agencies of government plans ahead to tackle flooding issues detrimental to the farming season.”

Analysts at the Financial Derivatives Company Limited, led by foremost economist Bismarck Rewane, had last week predicted that headline inflation would increase by 0.51 per cent to 15.4 per cent in December, describing it as “a hydra-headed monster that has eroded the disposable and discretionary income of consumers”.

“The continued rise in the general price level is driven largely by forex rationing, output and productivity constraints, higher logistics and distribution costs,” they said.

The analysts noted that consumer disposable income had been negatively affected by the hike in electricity tariffs, general reductions in subsidies and improved tax mobilisation.

“We believe the sustained pressure in the food basket is reflective of the impact of the underwhelming harvest season, persistent security challenges in the food-producing regions, and festive induced demand which further widened the demand-supply imbalance,” Cordros Capital Limited said in an emailed note on Friday.