Explained: Why Nigeria’s December inflation rate will be hotter

 Highlights of the article 

• The NBS to release Nigeria’s inflation report on Monday, 16th January 2023. 
• Experts predict higher inflation numbers for the month of December 2022. 
• The exchange rate at the black market moderated by 4.21% in the review month. 
• The CBN has raised the MPR by about 500 basis points in a bid to tame the rising rate of inflation in the country. 

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The National Bureau of Statistics (NBS) is set to release the official consumer price index (CPI) report, which measures the level of inflation in the country for the month of December 2022, and experts have weighed on the possible direction of the highly anticipated report. 

In the previous month, Nigeria’s inflation rate hit a new 17-year high of 21.47% as a result of the sustained energy crisis, surge in food prices, and exchange rate quagmire. According to the NBS, the increase in the inflation rate was driven both by the core and the food basket. 

Specifically, the core inflation rose to 18.24% in the month of November from 17.76% recorded in the previous month, while the food inflation rate galloped to 24.13% compared to 23.72% recorded in the prior period. 

Further checks reveal that the increase in the food index was driven by an increase in the price of bread, tubers, and cereals. On the other hand, the surge in the price of gas, liquid fuel, air transport, and other energy products drove the rise in the core index. 

The Nigerian economy was befuddled by a contingent of economic dilemmas, one of which is the rising inflation rate, and depreciating exchange rate amidst a crunch in FX value, which saw the Naira trade against the US dollar as high as N900/$1. This is coupled with socio-economic issues ravaging the African giant. 

Exchange rate appreciated: Despite the high volatility in the exchange rate market in 2022, the naira witnessed some level of relative stability during the festive period, attributed to increasing inflows from diaspora Nigerians who travelled into the country and those who sent remittances to their relatives and friends. 

• According to data tracked by Nairalytics – the research arm of Nairametrics, the exchange rate at the black market appreciated by 4.21% in the month of December 2022, closing at N736/$1 on the last day of the month compared to N767 recorded as of the previous month. 
• Although, the exchange rate at the parallel market depreciated by 3.51% to end the month at N461.5/$1, forex turnover increased in contrast to the previous month. Specifically, a total of $3.03 billion was traded at the official market in the month against the $2.84 billion that exchanged hands in November. 
• The foreign reserve however lost $30.17 million in the same month to the continuous intervention by the CBN in the FX market in other to defend the local currency. 

Energy prices: Nigerians had to grapple with sustained fuel scarcity across major areas of the country in the review month, which is almost a usual custom to experience fuel scarcity price hikes during festivities. 

• Nairametrics reported fuel scarcity across some notable locations like Lagos, Abuja, Calabar, Kaduna, Kano Oyo, Ogun, and Port Harcourt forcing Nigerians to stay in long queues to buy fuel at the regulated prices, while some other filling stations sold petrol for as high as N400 per litre. 
• Although, the long queues have been attributed to the sustained fuel subsidy payment, which is set to be discontinued by the middle of the year and could likely drive the price of fuel per litre to as high as N400 to N500 per litre. 
• During the month, electricity distribution companies also increased electricity prices for their Band A &B customers by as much as 16% from what it was in July.

CBN actions: It is worth noting that the Central Bank of Nigeria has tweaked the monetary tools within its ambit in other to tame the high inflation rate. 

• Some of the policy direction directed at curbing the inflation rate includes increasing the benchmark interest rate to a record high of 16.5%, reducing the Cash Reserve Requirement ratio to a minimum of 32.5% as well as reducing Over-The-Counter withdrawal and redesigning of the  

Nairametrics compiled the projection of economists and analysts on the direction of the inflation numbers for the month of December 2022. 

According to Gospel Obele, an economic affairs commentator, he opined that the inflation rate for the month of December could rise slightly on the back of the ripple effect from the food crisis, interest rate trajectory, and redesign of the currency amongst others. 

• He also added that the political party propaganda, and the uncertainties surrounding the coming election, exacerbated by the sustained discord between Russia and Ukraine, have an impact on Nigerians’ spending during the period. 
• “Nigerians are watching to understand the policy direction of the next president of the country, hence, there seems to be some form of uncertainty until post-elections,” he said. 

• He reiterated that the numbers could increase from the previous month, albeit at a slower pace following moves by the CBN to tame the rising cost of goods. 

Mr. Ezekiel Gomos of Jos Business School on the other hand believes that the announcement of the CBN to redesign the currency, and the stability of the exchange rate in December could help keep the inflation numbers at bay. 

• “Two things will play here, monetary policy about the redesigning of the currency, slowed down heavy expenditure in December to a considerable extent, which tame the usual rising demand during the December period,” he said. 
• “I expect the inflation rate to even out, it could be a slight increase, however,” he stated. 
• “Energy cost was counterbalanced, because the cost of petrol in major cities like Abuja and Lagos were not as high as expected, considering that fuel was sold at a higher rate in other areas of the country.” This is in his opinion could counterbalance the expected surge in the energy basket. 
• He also added that the moderation in the exchange rate at the parallel market could also have a positive effect on the inflation numbers. 

Meanwhile, Jonathan Aremu, a Professor from Covenant University, noted that it is hard to expect a reversal considering that during the Yuletide period, demand for goods relatively increased, which generally results in an increase in the price of commodities. 

• Secondly, he added that the productive sector of the Nigerian economy has not recorded significant growth compared to the level of money supply in the economy, hence, inflation becomes a resulting event from too much money in circulation against limited goods. 
• “The basic theory of money supply and inflation is that, when supply increases and volume or quantity remains the same, inflation is likely to follow, and we have not seen evidence of increased productivity in the real sector of the economy,” he said. 
• He further noted the importance to track and monitor the level of production and productivity in the economy, if we expect inflation to trickle down. Not doing that, in his words would be to expect an “Angelic intervention”. 

Why this matter: CPI report is a monthly report, which gives an indication of the living standard and the level of hardship that the people living in the geographical region experience.  

• The inflation report in Nigeria, helps citizens and investors understand how fast the purchasing powers of citizens are being eroded, especially in an economy with limited investment opportunities. 
• Nigerians and analysts alike will eagerly await the release of the document as the Bureau is set to publish the report later today.