Nigeria: CPI inflation rises to 34.19% y/y in June on rising food, rent, transport prices

• Food inflation remains main driver of inflation, together with transport and utilities
• Nigeria relies heavily on food and fuel imports, economy vulnerable to global supply shocks
• Food insecurity expected to worsen in parts of the country
• Core inflation remains at record high, underlying pressures remain strong

CPI inflation accelerated for the eighteenth straight month in June, reaching 34.19% y/y from 33.95% y/y in May, according to data released by the statistics office on Monday (July 15). The print is slightly above consensus market expectations of about 34% y/y. In the breakdown, food inflation reached a record-high 40.87% y/y as the effects of supply disruptions, higher transport costs and the weak FX rate continue to take their toll. One year after president Tinubu declared a state of emergency on food security to tackle food price increases, recent reports from the International Rescue Committee (IRC) and the United Nations indicate that severe food insecurity is still expected in some parts of Nigeria in the second half of 2024. Imported food inflation rose to a record-high 36.38% y/y, reflecting the volatility in the FX market and continued global shocks. Core inflation accelerated to 26.53% y/y, also a record high.

In m/m terms, consumer prices rose by 2.3%, edging up from 2.1% in May. Across major CPI categories such as food, utilities, clothing and transport, inflationary pressures remain strong on the back of the volatile FX rate and weak domestic food stocks. Higher fuel prices and a 70% drop in the value of the naira since June 2023 have contributed to price pressures. There are ongoing debates among local experts about the benefits of using food imports to control rising inflation. The federal government this month announced the suspension of duties, tariffs and taxes on certain food commodities imported via land and sea borders, as well as the importation of 500,000 metric tonnes of wheat and maize. While farmers and the organized private sector commended these measures, the African Development Bank Group expressed concerns that this policy could severely damage Nigeria's agricultural sector. AfDB president Abubakar Kyari advised that the country should focus on increasing local food production and generating employment through agriculture rather than depending on imports.

In the breakdown, food inflation (51% weight in the CPI basket) remains the main driver of annual consumer inflation (+24.6pps contribution), and April saw strong increases in the prices of potatoes, fish and meat. Going forward, local factors such as the insecurity in Nigeria's food producing states and the acute infrastructure deficit will drag on the production and transportation of local produce. We expect core inflation (all items less fresh produce and energy, 51% weight in the basket) to accelerate further in the coming months. The highest increases in the core component in the month were recorded in rents, journey by motorcycle, bus journey intercity and accommodation service, the statistics office said.

Nigeria's inflation is the highest it has been in 28 years and the risks to the future inflation path remain elevated. The central bank has raised interest rates three times this year to try to get price pressures under control, delivering a massive 750bps cumulative rate hike. With a weak FX rate and costly food distribution, we expect further interest hikes during H2. The next meeting of the MPC will take place on 22-23 July.