June 16, 2023/CSL Research

The nation’s Headline Inflation Rate was up by 19bps to 22.41% y/y in May 2023 from 22.22%
y/y in April 2023 driven by price increases in all the components of the index’s basket. On a Month-on-Month (m/m) basis, headline inflation rate was 1.94% in May 2023, 3bps higher than the growth rate of 1.91% reported in April 2023. The CPI basket witnessed its highest growths in the components of transportation, food & non-alcoholic beverages, health, miscellaneous goods & services and education with rates of 2.18%, 2.18% 1.87%, 1.78% and 1.74% m/m respectively. When compared with 2022, the headline inflation rate was 4.70% points higher compared with 17.71% recorded in May 2022.

The Food Inflation Rate was 24.82% y/y in May 2023, 21bps higher than the 24.61% y/y recorded in Apr 2023. This was driven by increases in price levels of yam and other tubers, bread and cereals, oil and fat, fish, meat and vegetables. Month on month, the food inflation rate was up 6bps to 2.19% m/m in May 2023 from 2.13% m/m in the prior month. The core Inflation rate of 20.06% y/y in May2023 was 8bps less than the growth rate of 20.14% y/y recorded in April 2023. This was largely due to the elevated supply of FX and the slightly reduced prices of kerosene and diesel in comparison to the prior month. Despite the drop in the index, the core inflation rate grew to 1.81% m/m in May 2023 from 1.46% in April 2023.

On the back of the recent policies implemented by the new administration, we expect a significant rise in inflation in June 2023. We had estimated that inflation in June may rise to as high as 25.8% due to the direct and indirect effects of the removal of fuel subsidy on price growth. The depreciation of the Naira at the I&E window adds another layer of concern as there is a strong pass-through effect of changes in the exchange rate on consumer prices, though we expect the full impact to be seen in July 2023. Other policies such as the imposition of 0.5% levy on goods imported from outside Africa will also increase inflationary pressures, making us believe y/y headline inflation rate for June 2023 will show a very steep growth when
compared with the prior month.

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