By Emmanuel Elebeke & Elizabeth Adegbesan
The World Bank, Tuesday, said that the high inflation rate caused by rise in prices of goods and services pushed seven million Nigerians below the poverty line by 2020.
Meanwhile the Nigeria Bureau of Statistics (NBS) released the Consumer Price Index (CPI) report which showed that the annual inflation rate fell marginally to 17.9 percent in May, representing 0.19 percentage points year-on-year YoY decline from 18.12 percent in April.
The upward trend in prices of goods and services is reflected in the annual inflation rate which rose to a four year high of 18.17 per cent in March this year.
While noting that the upward trend in prices of goods and services will persist in the second half of 2021, the World Bank among other things called for measures to protect poor Nigerians from inflation.
The World Bank made this call for measures to tame While noting that The World Bank disclosed this in its latest Nigeria Development Update (NDU) report, titled “Resilience through Reforms”.
While noting that the country’s economy is expected to grow by 1.8 percent in 2021,
The World Bank noted that while Nigerian economy has exited recession and it is projected to grow by 1.8 per cent in 2021, “the 2020 recession is expected to have lasting effects on poor and vulnerable households, adding that “uncertainty about the trajectory and duration of the COVID-19 pandemic will continue to influence household consumption and private investment.”
Continuing, the World Bank report said: “In 2020 the Nigerian economy experienced a shallower contraction of -1.8% than had been projected at the beginning of the pandemic (-3.2%). “Although the economy started to grow again, prices are increasing rapidly, severely impacting Nigerian households.
“As of April 2021, the inflation rate was the highest in four years. Food prices accounted for over 60% of the total increase in inflation. Rising prices have pushed an estimated 7 million Nigerians below the poverty line in 2020 alone.”
The report acknowledges notable government’s policy reforms aimed at mitigating the impact of the crisis and supporting the recovery; including steps taken towards reducing gasoline subsidies and adjusting electricity tariffs towards more cost-reflective levels, both aimed at expanding the fiscal space for pro-poor spending.
In addition, the report highlights that both the Federal and State governments cut nonessential spending and redirected resources towards the COVID-19 response. At the same time, public-sector transparency has improved, in particular around the operations of the oil and gas sector.
The report however, notes that despite the more favorable external environment, with recovering oil prices and growth in advanced economies, a failure to sustain and deepen reforms would threaten both macroeconomic sustainability and policy credibility, thereby limiting the government’s ability to address gaps in human and physical capital which is needed to attract private investment.
Commenting, Shubham Chaudhuri, the World Bank Country Director for Nigeria, said: “Nigeria faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity.
“While the government has made efforts to reduce the effect of these by advancing long-delayed policy reforms, it is clear that these reforms will have to be sustained and deepened for Nigeria to realize its development potential.”
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Consequently called on the federal government to focus on three policy priorities which include: “Reduce inflation by implementing policies that support macroeconomic stability, inclusive growth, and job creation; Protect poor households from the impacts of inflation; Facilitate access to financing for small and medium enterprises in key sectors to mitigate the effects of inflation and accelerate the recovery.
“Given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedite reform implementation on exchange-rate management, monetary policy, trade policy, fiscal policy, and social protection would help save lives, protect livelihoods, and ensure a faster and sustained recovery” said Marco Hernandez, the World Bank Lead Economist for Nigeria and co-author of the report.
Inflation drop to 17.9% in May-NBS
In its Consumer Price Index (CPI) Report for May, the National Bureau of Statistics (NBS) said that the annual inflation rate fell year-on-year (YoY) by 0.19 percent to 17.9 percent in May from 18.12 percent in April. This however differed from financial analysts’ earlier projections of a higher inflation rate in May.
According to the NBS, food inflation also dropped YoY by 0.44 basis points to 22.28 percent in May from 22.72 percent in April.
The NBS report stated: “The consumer price index, (CPI) which measures inflation increased by 17.93 percent (YoY) in May 2021. This is 0.19 percent points lower than the rate recorded in April 2021 (18.12 percent). Increases were recorded in all Classification of Individual Consumption by Purpose (COICOP) divisions that yielded the Headline index.
“On a month-on-month (MoM) basis, the Headline index increased by 1.01 percent in May 2021. This is 0.04 percentage points higher than the rate recorded in April 2021 (0.97 percent).
“The urban inflation rate increased by 18.51 percent (YoY) in May 2021 from 18.68 percent recorded in April 2021, while the rural inflation rate increased by 17.36 percent in May 2021 from 17.57 percent in April 2021.
“On a MoM basis, the urban index rose by 1.04 percent in May 2021, up by 0.05 percentage points compared to the rate recorded in April 2021 (0.99), while the rural index rose by 0.98 percent in May 2021, up by 0.03 points compared to the rate that was recorded in April 2021 (0.95 percent).”
On food inflation, the report stated: “The composite food index rose by 22.28 percent in May 2021 compared to 22.72 percent in April 2021.
“This rise in the food index was caused by increases in prices of bread, cereals, milk, cheese, eggs, fish, soft drinks, coffee, tea and cocoa, fruits, meat, oils and fats and vegetables.
“On a MoM basis, the food sub-index increased by 1.05 percent in May 2021, up by 0.06 percent from 0.99 percent recorded in April 2021.”
States with highest food inflation rate
States with highest YoY food inflation were Kogi (32.8 percent), Kwara (26. percent) and Enugu (25 percent), while Akwa Ibom (20 percent), Bauchi (18.7 percent) and Abuja (16.9 percent) recorded the slowest rise inYoY inflation.
On month on month basis however, May 2021 food inflation was highest in Kogi (3.1 percent), Ogun (2.9 percent) and Anambra (2.4 percent), while Edo, Sokoto and Ekiti recorded price deflation or negative inflation (general decrease in the general price level of food or a negative food inflation rate).
Analysts projection for inflation in May
In its June Economic Bulletin, Analysts at Financial Derivative Company Limited said: “Based on our time series model and market survey, headline inflation is likely to increase to 18.2 percent in the month of May from 18.12 percent in April.
“What also raised eyebrows was the statement by the FAO that global food prices are at a 10-year high of 4.8 percent . Therefore, it becomes more difficult for analysts to comprehend how food inflation in Nigeria would be running in the opposite direction of the global food basket. Food inflation is projected to rise to 24.15 percent in May.
“ Apart from the anticipated rise in headline (y-o-y) inflation, our model also indicates a sharp increase in monthly inflation to 1.2 percent (15.34 percent annualized) from 0.97 percent (12.3 percent annualized) in April).”
Analysts at United Capital Management Plc said: “The landscape of supply-side constraints (including unabating security concerns, Foreign Exchange (FX) illiquidity, and planting season impacts on food supply) remain. Also, we expect food demand to rebound in May albeit moderately as the spillover impacts of frontloading on food stock linger.
In view of these considerations, we project an uptick in m/m inflation albeit below pre April level, to 1.20 percent and consequently forecast headline inflation to print higher by 3bps, settling at 18.15 percent in May 2021.”