The Nigerian Bureau of Statistics, NBS, in its monthly report on inflation released on Tuesday, revealed that the consumer price index (CPI) which measures inflation, for May 2016 has risen to 15.6 percent, its highest point since February 2010.

The report states that the inflation rate has worsened consistently since President Muhammadu Buhari took office in May 2015.

Rolling out the current Consumer Price Index, CPI, yesterday, NBS, said: “The increase in inflation rates in May relative to April reflects an overall increase in the general price level across the economy as all divisions which contribute to the headline index increased at a faster pace.’’

Giving further insight into what drove the increase, NBS noted that “electricity rates as well as other energy prices continue to manifest as key drivers of the Core component of the CPI.” Core inflation came in significantly higher at 15.1 per cent year-on-year, y-o-y, compared to the 13.4 per cent y-o-y recorded in April, majorly driven by an up-shoot in the Utilities and Transport sub-categories.

During the month, the highest increases were seen in the Passenger Transport by Road, Liquid Fuel (kerosene), Fuels and Lubricants for Personal Transport Equipment (Premium Motor Spirit) and Vehicle Spare Parts groups.

Likewise, food prices continued to exert pressure on the CPI as increases in both imported and domestic prices pushed food inflation upwards with the food sub-index rising for the seventh consecutive month to 14.9 per cent y-o-y as against 13.2 per cent in April, as all major food groups which contribute to the Food sub-index increased at a faster pace driven by higher food prices in Fish, Bread and Cereals, and Vegetables groups for the second consecutive month.

Reporting on the food inflation, NBS stated, “increased prices of both domestic and imported food products continue to drive food prices higher. The index increased by 14.9% (y-o-y) during the month of May, 1.7% points higher from rates recorded in April.

“All groups which contribute to the index increased with the highest increase recorded in the Bread and Cereals group which increased from 14.5% in April to 16.6% in May. On a month-on-month basis, the Food sub-index increased by 1.3% points from 1.3% in April to 2.6% in May. “On a month-on-month basis, the highest price increases were recorded in the bread and cereals; vegetables, and “sugar, jam, honey, chocolate and confectionery” groups.

“The average annual rate of change of the Food sub-index for the twelve-month period ending in May 2016 over the previous twelve month average was 11.2%, 0.4% points from the average annual rate of change recorded in April,” NBS concluded. At 14.9 per cent food inflation for the month of May 2016 was the highest since June 2010 (70-months), as the moderations which had been place due to predominant local content and cheap labour has given way to other cost pressures in the economy.

Economists’ comment Economists at CardinalStone Partners Limited, a Lagos based investment house, said: “Scarcity of domestic food items has begun to manifest in the form of higher prices, while imported food prices continue to trend upwards (predominantly driven by pass through of tight foreign exchange supply). “The month-on-month trend for imported food inflation shows a faster pace of increase to 3.1 per cent (April: 1.9 per cent) which we believe is a result of the Naira depreciating toN340/US$ in May (April: N320/US$)”.

Economists at FSDH Merchant Bank who had accurately forecast the inflation level in their economic report two weeks ago, said:   “The prices of most items were on the increase in May as a result of higher transport costs, following the increase in the pump price of Premium Motor Spirit, PMS. “Our analysis indicates that the value of the Naira remained stable at the inter-bank market, while it depreciated at the parallel market by 8.63% to close at US$/N351.00 from US$/N320.70 at the end of May.”

‘’The depreciation recorded at the parallel market between the two months under review further increased the prices of imported consumer good prices in the domestic market. “The prices of most of the food items that FSDH Research monitored in May 2016 increased. The prices of pepper, tomatoes, yam, rice, garri, onions, palm oil, sweet potatoes, meat, Irish potatoes, beans and vegetable oil increased by 140%, 77.58%, 25.60%, 17.04%, 13.33%, 13.10%, 10.71%, 10.32%, 8.33%, 7.58%, 6.48% and 0.52% respectively. Meanwhile, the price of fish remained unchanged.

“The movement in the prices of food items during the month resulted in a 2% increase in our Food and Non-Alcoholic Index to 200.64 points. We also noticed increases in Transport, Housing, Water, Electricity, Gas & Other Fuels divisions between April and May 2016. “Our model indicates that the price movements in the consumer goods and services in May 2016 would increase the CCPI to 198.31 points, representing a month-on-month increase of 2.75%. We estimate that the increase in the CCPI in May will produce an inflation rate of 15.58%”, FSDH concluded.

Economists at Financial Derivatives Company, FDC, run by Bismarck Rewane, one of Nigeria’s leading economists said “analysts’ consensus was for a CPI spike of 14.5%, the reality and magnitude of the spike to 15.6% was surprising. FSDH was accurate in its inflation forecast. “This is the highest price level in Nigeria since February 2010. The inflation trajectory rose sharply since February 2016 when it spiked to 11.4%.

“The current inflation spiral has been caused by both fundamental cost pressures, periodic scarcities of essential commodities and forex unavailability. The pricing pass through has been mixed but mainly in price inelastic commodities. “The transmission effect on consumer prices was elevated mainly by an astronomical jump in the price of diesel from N130 per litre to N185 per litre.

“Diesel fuel is critical to distribution and logistics in the delivery of goods to the market. It also explains the widening differential between rural and urban inflation. “The monetary policy authorities at their last meeting refused to tighten further by leaving the MPR (Monetary Policy Rate) unchanged. It preferred to support growth because of the fears of an impending recession”.

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