Posted Wed, Jul 17, 2024 12:53 PM

Nigeria’s inflation rate rose to a 28-year high in June 2024

The National Bureau of Statistics (NBS) reported that all measures of inflation rate rose in June 2024, albeit at a slower pace. Headline inflation increased to 34.2 percent in June 2024 from 22.8 percent in June 2023 and 34.0 percent in May 2024. The inflationary pressures remain driven by currency depreciation, with the official exchange rate averaging N1471/US$ in June compared to N769/US$ in June 2023 and rising imported food inflation (36.4 percent y/y). Headline inflation remains dominantly driven by food inflation, which rose to 40.9 percent year-on-year, up from 40.7 percent in May 2024 and significantly higher than 25.3 percent in June 2023 (see Fig 1). Similarly, core inflation rose to 27.4 percent in June 2024, from 27.0 percent in May 2024 and 20.1 percent in June 2023. 

Data: NBS; Chart: NESG Research

All measures of prices saw a marginal increase month-on-month. The headline inflation rate rose to 2.3 percent in June 2024 from 2.1 percent in May 2024 after declining in response to monetary policy tightening since February 2024 (see Fig 2). Similarly, the food inflation rate increased to 2.6 percent in June 2024 from 2.3 percent in May 2024. In addition, core inflation saw a slight monthly increase to 2.1 percent from 2.0 percent in May 2024. Overall, the slight increase in the monthly inflation rate could be attributed to higher transportation costs, housing & utilities, and increased average prices of certain food items such as Groundnut Oil, Palm Oil, Water Yam, Coco Yam, Cassava (Potatoes, Yam & Other Tubers Class), among others.

Inflation Outlook: Looking ahead, the headline inflation rate is expected to remain elevated with a likely slowdown in the near term due to the base effect, the discontinuation of the Central Bank of Nigeria's Price Verification system and the 150-day suspension of import duties on staple foods. However, the upside risks will likely prevail if infrastructural deficits, insecurity, low agricultural production, high input costs and rising energy costs are not proactively addressed.

The monetary policy stance is likely to remain restrictive in the coming months if the annualised inflation rates do not buck their upward trends. Meanwhile, caution must be taken as further monetary tightening would increase the cost of borrowing, discouraging domestic investments and stifling economic growth. On the other hand, a high policy rate is likely to attract foreign portfolio investments into the country in spite of the negative real returns on investment.