Nigeria Food inflation at 37.52% in August: What Lies Ahead?

The inflation report for August 2024 provides significant insights into Nigeria's economic conditions and challenges, particularly as the country grapples with high inflation rates that affect the daily lives of millions. The National Bureau of Statistics (NBS) reported that Nigeria’s inflation rate dropped to 32.15% in August, compared to 33.40% in July 2024. Although this shows a slight easing, the inflation rate remains high, and this article will examine the impact on Nigeria's economy, the underlying causes, and how it compares with global inflation trends.

The key highlights of Nigeria's August 2024 inflation report include:

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Headline Inflation: Inflation dropped to 32.15% in August, a decline from 33.40% in July, marking the second consecutive month of easing inflation.

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Food Inflation: Food inflation stood at 37.52%, a slight decrease from 39.53% in July. Rising food prices continue to be a significant driver of inflation, with staples like bread, cereals, yams, and vegetable oil leading the price increases.

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Year-on-Year Increase: On a year-on-year basis, inflation was 6.35 percentage points higher compared to August 2023, when it stood at 25.80%.

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Monthly Inflation Rate: The month-on-month inflation rate for August was 2.22%, a slight decrease from the 2.28% recorded in July.

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Regional Disparities: The highest food inflation rates were recorded in Sokoto (46.98%), Gombe (43.25%), and Yobe (43.21%), while Benue, Rivers, and Bayelsa had the lowest increases.

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These key highlights illustrate that while inflation is slowly easing, Nigeria continues to face significant price pressures, especially in the food sector.

Overview of Nigeria’s Inflation in August 2024

In August 2024, Nigeria’s inflation rate eased for the second consecutive month, dropping by 1.25 percentage points from the previous month. This brings some relief after inflation peaked at 34.19% in June. However, despite this easing, prices of essential goods and services are still rising, albeit at a slower rate.  A key component of this inflation is food inflation, which stood at 37.52% in August, down from 39.53% in July. The reduction, though modest, reflects slightly better food supply conditions, though prices remain prohibitively high for many Nigerians. Staple foods such as bread, cereals, yams, and vegetable oil continue to drive up costs, and the effects of fuel subsidy removal (and the uncertainties around it) and Naira devaluation are still reverberating across the economy.

Factors Driving Inflation in Nigeria

Several factors have contributed to Nigeria’s persistent inflation, which remains among the highest globally:

1. Removal of Petrol Subsidies: In 2023, President Bola Tinubu removed the fuel subsidy, which had kept petrol prices artificially low for years. This decision led to sharp increases in transportation and production costs, impacting food and non-food items alike.
2. Currency Devaluation: The decision to float the naira has led to a depreciation of the currency, increasing the cost of imports. Given Nigeria's reliance on imports for food and manufactured goods, this has contributed significantly to inflation.
3. Insecurity and Agricultural Disruption: Insecurity in rural areas, where much of Nigeria’s food is produced, has disrupted agricultural output, driving up food prices. The situation has worsened food insecurity, with the country facing challenges in meeting domestic food demand.
4. Global Commodity Prices: Global food prices have also been rising due to geopolitical tensions, climate change, disruptions in supply chains, and most importantly, the Naira devaluation and the dollarization of the country’s economy. This global trend has further exacerbated Nigeria’s domestic inflation problem.

Implications for the Nigerian Economy

 The high inflation rate has severe implications for Nigeria’s economy:

1. Reduced Purchasing Power: With inflation outpacing wage growth, the average Nigerian household faces diminished purchasing power. This has led to a rise in poverty levels as more people struggle to afford basic necessities like food, fuel, and housing.
2. Business Environment: For businesses, the high cost of inputs and transportation has reduced profitability. Many small and medium enterprises (SMEs) have been forced to scale back operations or shut down entirely, leading to job losses and lower productivity.
3. Monetary Policy: The Central Bank of Nigeria (CBN) has struggled to contain inflation. Despite raising interest rates, inflation remains stubbornly high. Tightening monetary policy further could stifle economic growth, leading to a challenging balancing act for the CBN.

Comparing Nigeria’s Inflation with other Countries

While Nigeria's inflation of 32.15% remains exceptionally high, other countries have also been battling inflation, albeit at much lower levels:

United States:

In August 2024, the inflation rate in the U.S. was 3.2%, a significant drop from the previous year, reflecting a successful effort by the Federal Reserve to tame price increases after aggressive rate hikes. The U.S. inflation is now closer to the Fed's 2% target.

 United Kingdom:

The UK saw inflation ease to 6.8% in August 2024, down from over 10% in early 2023. Rising food and energy prices remain an issue, but central bank actions have helped curb the worst of the inflationary pressures.

Ghana:

Closer to home, Ghana is experiencing inflation of 27% in 2024, driven by currency depreciation and food shortages. Like Nigeria, Ghana's economy has been hit hard by rising food prices and energy costs.

 South Africa:

South Africa’s inflation rate stood at 5.6% in August 2024, a stark contrast to Nigeria. Despite facing similar global challenges such as rising food and fuel prices, South Africa’s more diversified economy and effective monetary policy have helped keep inflation in check.

What Lies Ahead?

The outlook for Nigeria remains uncertain. Despite efforts by the government to stabilise prices through import duty suspensions on food items, inflation continues to pose a major challenge. The government’s decision to declare a state of emergency on food insecurity and introduce new measures to boost agricultural output may provide some relief, but it will take time before these interventions translate into lower inflation rates.

Conclusion

While the slight easing of inflation in August 2024 brings some hope, Nigeria’s economy remains under significant pressure. Inflation, particularly food inflation, continues to erode household incomes and strain businesses. The government and Central Bank face a delicate balancing act in controlling inflation without stifling economic growth. When compared with other countries, Nigeria’s inflation rate is among the highest globally, reflecting deep structural issues within the economy. Addressing these challenges will require a comprehensive approach that includes improved agricultural productivity, better security in rural areas, and more stable monetary and fiscal policies.