Analysts See Inflation Easing Further Despite Rising Food Prices

Nigeria’s headline inflation is likely to keep trending downward in the coming months, as softer core inflation and calmer exchange rates continue to outweigh mounting pressure from food prices, according to analysts at Comercio Partners.

The projection follows fresh data from the National Bureau of Statistics showing headline inflation slowed to 15.43 per cent year-on-year in July, down from 15.91 per cent in June  the second straight monthly decline and the steepest slowdown recorded so far this year.

Analysts say the July numbers point to inflation pressure becoming more narrowly concentrated in volatile food categories, rather than spreading broadly across the economy. Core inflation, which strips out volatile items, fell sharply to 14.97 per cent from 15.92 per cent, while its month-on-month reading dropped to 0.15 per cent from 1.66 per cent a sign, analysts say, that underlying price pressures are cooling as exchange rate volatility subsides.

Food prices tell a different story. Food inflation jumped to 20.31 per cent year-on-year in July from 17.52 per cent in June, with the month-on-month rate climbing to 5.56 per cent from 3.75 per cent. Comercio Partners linked the spike to agricultural supply constraints, logistics and distribution costs, seasonal effects and deeper structural issues that monetary policy alone can’t fix. “Food inflation remains a structural weakness,” the analysts noted, pointing out how heavily it weighs on household budgets, especially for low- and middle-income Nigerians.

Even so, the headline rate still moderated overall, thanks to smaller contributions from several major spending categories. Food and non-alcoholic beverages’ share of headline inflation slipped from 6.37 to 6.18 percentage points, restaurants and accommodation from 2.06 to 1.99, transport from 1.70 to 1.64, and housing, utilities and fuel from 1.34 to 1.30 percentage points. Together, these four categories accounted for roughly 75 per cent of the 0.48 percentage-point drop in headline inflation. Month-on-month, headline inflation also eased, coming in at 1.57 per cent in July versus 1.66 per cent in June.

Comercio Partners expects the gradual disinflation to continue, backed by steadier core inflation and a more stable currency market. But the firm cautioned that rising political activity ahead of elections could complicate the picture  as heightened demand for food, transport, accommodation and foreign exchange during campaign season may reignite inflationary pressure and slow the pace of decline.