Posted Fri, Jun 21, 2024 2:46 PM

Nigeria’s inflation rate surged to 34 percent in May 2024

According to the National Bureau of Statistics (NBS), all indices of inflation rate surged year-on-year in May 2024. The Headline inflation rose to 33.9 percent in May 2024 from 22.4 percent in May 2023 and 33.7 percent in April 2024. This marginal increase in Headline inflation can be attributed to currency devaluation, with the official exchange rate averaging N1483/$ in May compared to N461/$ in May 2023 and N1330/$ in April 2024, along with rising imported food inflation (34.8 percent y/y) and higher energy costs. Headline inflation remains dominantly driven by Food inflation, which rose to 40.7 percent year-on-year, up from 40.5 percent in April 2024 and significantly higher than 24.8 percent in May 2023. Similarly, Core inflation rose to 27.0 percent in May 2024, from 26.8 percent in April 2024 and 19.8 percent in May 2023, driven mainly by increases in costs for restaurants and hotels (28.6 percent y/y) and transport (25.6 percent y/y).

All measure of prices decreased month-on-month in May 2024: On a month-on-month basis, the Headline inflation rate fell to 2.1 percent in May 2024 from 2.3 percent in April 2024 - representing the third consecutive month of decline (see Fig 2). Also, the Food inflation rate slowed to 2.3 percent in May 2024 from 2.5 percent in April 2024. In addition, Core inflation declined monthly to 2.0 percent from 2.2 percent in April 2024. Overall, the decline in the monthly inflation rate could be attributed to a tighter monetary policy stance, a downward review of the electricity tariff and a slower increase in the average prices of some food items, such as palm oil, yam, stockfish, groundnut oil, etc.

Inflation Outlook  

The Headline inflation is expected to remain elevated in the near term due to perennial challenges such as currency depreciation, insecurity in food-producing regions, and elevated energy costs. Meanwhile, the downside risks include crop harvest and the removal of import duties on staple foods and intermediate inputs, which would improve the domestic food supply and support local production. However, in the short term, the upside risks, particularly insecurity, low agricultural production, high input costs and rising energy costs, will likely dominate unless proactive measures are taken to reverse them. Finally, the recent hikes in the Monetary Policy Rate (MPR) are yielding fruits, as reflected in the persistent decline in the month-on-month inflation rate. However, if annualised inflation does not buck its rising trend in the near term, the monetary policy stance is likely to remain hawkish in the coming months. Meanwhile, caution must be taken as further tightening could be detrimental to economic growth.