The Consumer Price Index (CPI) was released by the National Bureau of Statistics (NBS) last week, with inflation reaching an 11-month high of 17.71 percent in May, compared to 16.82 percent in April of this year, but slower than the 17.93 percent recorded in May of 2021.
While the country’s inflation rate is rising at an alarming rate, the problem is not unique to Nigeria; rising inflation has become a global phenomenon. Due to rising inflation rates in almost all countries, the World Bank recently revised its global growth projections.
The bank revised global growth downwards to 2.9 per cent from the previous forecast of 5.7 per cent in 2022. World Bank president, David Malpass, had warned that the grinding war in Ukraine, supply chain chokeholds, COVID-19 related lockdowns in China, and dizzying rise in energy and food prices are exacting a growing toll on economies all along the income ladder.
A look at the inflation levels across the world shows that Nigeria is not alone in double digit inflation as more than 25 countries across the world are seeing inflation at above single digit. For example, Turkey has an inflation rate of 73.5 per cent while war torn Sudan is seeing a 192.2 per cent inflation.
Russia and Ukraine are seeing inflation at 18 and 17 per cents respectively while back here in Africa, Ethiopia is seeing inflation at 37.7 per cent. Ghana, Angola and Sierra-Leone at the last count recorded 27.6, 24.42 and 22.44 per cents inflation rates.
Speaking on the rising inflation, the CBN deputy governor, Economic Policy, Kingsley Obiora, said the global economy has been going through a very difficult time. “We have seen some hikes in commodity prices, especially food for us, as escalated by the invasion of Ukraine by Russia, two very significant commodity exporters.
“We have also seen disruptions in global value chains that has been aggravated by the lockdowns in China which as we all know, is now the manufacturing factory of the world. We have seen some rebalancing of demand in favour of services which are usually more expensive than goods.
“We are seeing some tightness in labour markets around the world because as people are becoming freer to work from home, it has made labour more valuable and tightness in the labour market. All of these have meant that we are seeing inflation at unprecedented and uncomfortable levels around the world. You go to the UK and the US were for forever they had almost zero inflation.
“They are now almost six per cent in the UK and EU and nine per cent in the US. You go to Argentina for example, there are over 70 per cent inflation. So when you look at all these, you begin to feel that we are not doing all that badly in Nigeria at 17 per cent.”
Commenting on the current inflation figures in Nigeria, senior research analyst at FXTM, Lukman Otunuga, noted that, there was a period when Nigeria displayed resilience against the inflation menace. “As other countries across the globe waged war on rising prices, Africa’s largest economy experienced periods of cooling inflation. This anomaly was a welcome development for the Central Bank of Nigeria (CBN) and offered room for interest rates to be left unchanged in an effort to stimulate economic growth.
“Fast forward to today, Nigeria’s annual inflation is back on the rise – accelerating for the fourth straight month to 17.71 per cent in May. It was the steepest inflation rate since last June, fuelled by rising food prices, soaring diesel prices, and ongoing dollar shortages. On top of this, surging global commodity prices and pre-election spending have the potential to fuel the fire – especially after the IMF projected prices to rise between 18 and 22 per cents in 2022.
“While other oil-producing countries are enjoying the gift of soaring commodities, Nigeria has failed to cash in thanks to sub-optimal oil production, heavy reliance on gasoline imports, and fuel subsidies. Meaning that the current commodities boom is not translating to higher export earnings for Nigeria but to higher costs and inflationary risks.
“Given how the CBN has triggered a tightening cycle, more hikes are expected down the road. Back in May, the central bank surprised markets with a 150-basis point rate hike. With the CBN now focused on fighting inflation and interest rates rising rapidly across the globe, more hikes could be on the table to limit capital outflows.
“According to a report on Bloomberg, the CBN is expected to raise interest rates by 50 basis points two additional times in 2022, bringing benchmark rates to 14 per cent. Theoretically, the rate hikes could limit inflation risks at a time when external and domestic factors are threatening Nigeria’s economy.
“Ongoing geopolitical risks, extreme weather, and supply-chain disruptions could feed the inflation monster, while pre-election spending ahead of the general elections is likely to exacerbate the negative situation.
question is whether Nigeria is in a position to handle higher interest rates? Time will tell.”
Looking ahead, analysts at Cordros Research said, they expect domestic prices to maintain an uptrend in the short term, given the lingering increase in energy prices and progressive hikes in electricity tariffs amidst the current shortages of PMS in some parts of the country.
“Besides that, we expect food prices to remain pressured given the below-average off-season harvest amidst high import prices. Overall, expect the headline CPI to rise by 1.83 per cent month on month, with the unfavourable base effects from the prior year translating to a 90 basis points increase in year on year inflation rate to 18.61 per cent in June,” he stressed.