NBS national bureau of statistics

Inflation Soars to 22.41% in Wake of Escalating Basic Living Expenses

Nigeria’s inflation rate reached a 17-year high of 22.41 percent in May 2023, marking the fifth consecutive month of increase due to rising costs of basic items.

The National Bureau of Statistics (NBS) released its latest Consumer Price Index (CPI) and Inflation Report, indicating a continued rise in the prices of essential living items like food and gas. The inflation rate rose by 0.19 percent from 22.22 percent in April 2023 to 22.41 percent in May 2023.

The surge in inflation was primarily driven by higher food costs, with food inflation reaching 24.82 percent in May 2023, the highest since September 2005.

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The data showed consistent price increases for various items, both on a yearly and monthly basis, affecting both urban and rural areas which has led to a decline in disposable incomes and in general living standards.

Comparing May 2023 to the previous year, the inflation rate rose by 4.70 percentage points from 17.71 percent.

On a month-on-month basis, inflation increased by three basis points to 1.94 percent in May 2023 compared to 1.91 percent in April 2023. The average year-to-date inflation rate stood at 1.86 percent.

The analysis of different components revealed a broad increase in food prices, with farm produce rising by 40 basis points to 24.24 percent in May 2023 compared to the same period in 2022. Processed foods also saw a 16 basis point increase to 25.00 percent compared to the previous year.

Notably, on a monthly basis, food prices rose by six basis points from 2.13 percent in April 2023 to 2.19 percent in May 2023, reaching the highest level in 17 months.

The NBS report highlighted the highest year-on-year inflation rates in May 2023 in Ondo (25.84 percent), Kogi (25.70 percent), and Rivers (25.02 percent), while the slowest rise in headline inflation was recorded in Taraba (19.55 percent), Sokoto (19.56 percent), and Plateau (19.89 percent).

On a month-on-month basis, the highest increases were observed in Osun (3.05 percent), Ebonyi (3.02 percent), and Kogi (2.81 percent). Conversely, the slowest rise on a monthly basis occurred in Ogun (0.64 percent), Nasarawa (0.89 percent), and Imo (0.94 percent).

Breaking down the food inflation figures, the highest year-on-year rates in May 2023 were recorded in Ondo (30.26 percent), Kogi (29.83 percent), and Kwara (29.52 percent), while the slowest increases were observed in Sokoto (18.89 percent), Taraba (21.30 percent), and Kano (21.33 percent).

On a month-on-month basis, the highest food inflation rates in May 2023 were seen in River (3.74 percent), Osun (3.44 percent), and Kogi (3.38 percent), while the slowest rises were observed in Sokoto (0.45 percent), Kano (0.61 percent), and Nasarawa (0.85 percent).

The urban inflation rate in May 2023 was 23.74 percent on a year-on-year basis, 5.50 percentage points higher than in May 2022. On a month-on-month basis, the urban inflation rate was 2.09 percent in May 2023, 0.05 percentage points higher than in April 2023.

The rural inflation rate in May 2023 reached 21.19 percent on a year-on-year basis, marking a 3.98 percent increase compared to May 2022.

On a month-on-month basis, the rural inflation rate in May 2023 was 1.80 percent, slightly higher by 0.02 percentage points than in April 2023. The corresponding 12-month average for the rural inflation rate in May 2023 was 20.50 percent, reflecting a 4.59 percentage point increase from May 2022.

Experts reviewing the inflationary trend pointed out that rising living costs, security challenges undermining the agricultural value chain, currency pressures, and unfavorable production conditions were contributing factors.

Bismarck Rewane’s Financial Derivatives Company (FDC) stated that while the removal of subsidies could increase the risk of high inflation, the forex reform unifying exchange rates into a market-driven rate would not lead to inflation.

FDC emphasized that Nigeria is undergoing structural reforms, including the removal of an expensive petrol subsidy regime and the dismantling of a rigid forex system.

They argued that the floating of the Naira would not significantly impact the price level since imported commodities in Nigeria are currently priced using the parallel market rate.

Cordros Capital predicted upward pressure on food prices to continue in June due to a below-average off-season harvest and ongoing planting season, which are expected to widen the gap between food demand and supply.

Analysts also noted that the removal of petrol subsidies could result in higher intra-state transport costs, which may further impact food prices. SCM Capital described the inflationary trend as stagflation, eroding savings and incomes and causing interest rates to reach their highest point in nearly 20 years.

They anticipated that inflation would continue to rise throughout the year, driven by the removal of petrol subsidies and adjustments in the forex rate at the official market.