Supply Chain Disruptions Push Inflation to 12.4% in May

Analysts urge FG to boost food production, forex supply

Supply chain disruptions, due to the COVID-19 pandemic, have pushed the Consumer Price Index (CPI), which is used to measure inflation rate in the country, to 12.40 per cent in May, a level last seen in August 2018.

The headline index increased to 12.40 per cent in May compared to 12.34 per cent in the preceding month, the National Bureau of Statistics (NBS) said yesterday.

The NBS attributed the 0.06 per cent hike in headline index to increases in all the parameters that determine inflation.

According to the CPI figures for May, on a month-on-month basis, the headline index increased by 1.17 per cent, representing 0.15 per cent rate higher than the 1.02 per cent recorded in April.

The composite food index rose to 15.04 per cent year-on-year in May compared to 15.03 per cent in April.

On a month-on-month basis, food increased by 1.42 per cent in May, up by 0.24 per cent points from 1.18 per cent recorded in April, the statistical agency noted.

Core inflation, which excludes the prices of volatile agricultural produce stood at 10.12 per cent in May, up by 0.14 per cent when compared with 9.98 per cent in April.

Essentially, the uptick in food inflation was fuelled by the increases in prices of bread and cereals, potatoes, yam and other tubers, oils and fats, fruits, fish and meat.

On the other hand, core inflation rose as a result of the highest increases in prices of pharmaceutical products, medical services, repair of furniture, hospital services, passenger transport by road, motor car, bicycles, maintenance and repair of personal transport equipment, passenger transport by sea and inland waterways, paramedical services, motor cycles and hairdressing salons and personal grooming establishment.

However, the urban inflation rate increased to 13.03 per cent (year-on-year) in May compared to 13.01 per cent in April while the rural inflation rate increased by 11.83 per cent in May from 11.73 per cent in the preceding month.

On a month-on-month basis, the urban index rose by 1.18 per cent in May, up by 0.12 points from 1.06 per cent recorded in April. The rural index also rose by 1.16 per cent in May, up by 0.18 points from the 0.90 per cent recorded in the preceding month.

Owing to this development, analysts have reiterated the need for the federal government to urgently increase intervention support for productive sectors of the economy amidst the increasing threats posed by rising inflation.

Experts said the government must particularly boost the agricultural sector because food inflation appeared to constitute the main challenge to inflationary pressures.

Speaking in an interview with THISDAY, an economist and senior faculty member, Lagos Business School, Mr. Bongo Adi, called on the government to invest in additional food storage facilities nationwide to curtail food inflation.

He said: “On the food inflation, I think it is the season record we always record during this time of the year and there is nothing we can do about that. But If we had good storage infrastructure, we would have opened up our food reserves to be used to bridge the demand and supply gap in the market.”

Also, Prof. Uche Uwaleke of the Nasarawa State University, said the rise in core inflation, which had been single digit for many months and has now crossed the 10 per cent psychological threshold, should be of particular concern for the Central Bank of Nigeria (CBN).

According to the former Imo State Commissioner for Finance,

"It doesn't take much to predict that inflation rate will be too close to or even exceed the current MPR of 12.5 per cent before the Monetary Policy Committee's next scheduled meeting in July.

"Inflation rate above 12.5 per cent would translate to negative real return, which is inimical to attracting much-needed investments."

A former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, said there should be further supply of foreign exchange to the banks and BDCs in order to reduce the prevailing scarcity in the market.

However, he noted that inflation rate was not likely to revert to 12 per cent because of the current exchange rate of the naira to dollar, which is currently at N445 at the parallel market.

In addition, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said the government must work to ramp up production after the lockdown to prevent the country from sliding into another recession.

He added that though the recent interest rate cut by CBN remained a welcome move, "but this needs to trickle down into the real sector."

An Associate Professor of Agricultural Economics at University of Port Harcourt, Anthony Onoja, commended CBN's policy efforts at curtailing inflation, stressing that this had been positive.

Head of Research at Afrinvest, Mr. Abiodun Keripe, said the slow pace of economic activities following the gradual easing of the lockdown could have fuelled an increase in the headline index for the month under review.

He said:“The numbers are rising as expected. The economy is currently in a partial reopen and business activities are picking up at a slow pace but relative to what we saw in April and March and I believe that is what is responsible for the increase we are seeing in the numbers now.

“Core inflation sort of moderated the first time since February by about five basis points on a month-on-month basis but on a year-on-year basis, it was up by about 14 basis points. We can attribute that to the fact that for this month, not a lot of spending on nonessential items but then it may just be momentarily and when we progress to the rest of the year, that might likely pick up.”