Amid Interest Rate Hike Regime, Subsidy Removal, Inflation Rises To 22.4%

Despite the adoption of hike in Policy Rate (MPR)  regime to reign in inflationary pressures, Consumer Price Index (CPI) which measures inflation rose to 22.41 per cent in May 2023, as food prices remained stubbornly high, exacerbating the financial strain on consumers.

The food basket rose by 0.21% to 24.82% while the month-on-month index inched up by 0.03% to 1.94% (25.93% annualized) from 1.91% (25.5% annualized) in April.

Nigeria is currently embarking on structural reforms, including a fundamental change in an expensive petrol subsidy regime.

It is also attempting to dismantle a cumbersome forex system which in theory is a floating rate but in practice, is as rigid as it comes.

According to Bismarck Rewane of Financial Derivatives Company, “While the removal of petrol subsidy is likely to push up inflation by about 3% to 25.4% in the short-term, fears that exchange rate unification will also stoke inflation are misplaced. This is because imported commodities in Nigeria are currently priced using the parallel market rate. Therefore, a floating of the Naira is unlikely to have a major impact on the price level.”

However, CBN has been aggressive in its  monetary  policy  stance with the  last one raised to 18.5 per cent, but it has not been able to operate within it’s target band of between 6 amd 9 percent.

The CBN said inflation is a major challenge, adding that the drivers of inflation are outside its control including Premium Motor Spirit (PMS) supply.

The 22.41 per cent surge was disclosed by the National Bureau of Statistics (NBS) in its Consumer Price Index (CPI) report released on Thursday indicating the fifth consecutive surge in 2023.

According to the report, the figure showed an increase of  0.19 per cent points when compared to the 22.22 per cent recorded in April 2023.

Similarly, on a year-on-year basis, the headline inflation rate was 4.70 per cent points higher when compared to the rate recorded in May 2022, which stood at 17.71 per cent.

The NBS report stated, “In May 2023, the headline inflation rate increased to 22.41 per cent relative to April 2023 headline inflation rate which was 22.22 per cent. the May 2023 inflation rate showed an increase of 0.19 per cent points when compared to April 2023.”
The NBS attributed the surge to the food inflation rate which quickened to 24.82 per cent in May from 24.61 per cent in the previous month

Also, on a year-on-year basis, it rose by 5.33 per cent points higher compared to the 19.5 per cent recorded in May 2022

The rise in food inflation on a year-on-year basis was caused by increases in prices of oil and fat, yam and other tubers, bread and cereals, fish, potatoes, fruits, meat, vegetable, spirit
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Other factors that contributed to the May inflation according to NBS are, food and non-alcoholic beverages recorded to be 11.61 per cent, housing water, electricity gas & other fuel 3.75 per cent, and transport to be 1.46 per cent amongst others.
The International Monetary Fund (IMF) during the World Bank meeting, disclosed that Inflation is a global threat now to economic growth, and Nigeria is on the receiving end.