August 2, 2024/FBNQuest Research

According to data from the Central Bank of Nigeria (CBN), the total currency in circulation (CIC) increased to an all-time high of N4.1trn, marking a 56% year-on-year (YoY) increase compared with N2.6trn in July 2023. The CBN’s data also reveals that 94% (N3.8trn) of the currency in circulation is cash outside the banking system. While the increase in CIC may suggest improved economic activity in nominal terms and higher consumer spending, it also highlights inflation risk, particularly if money supply growth exceeds real output growth.

• June’s CIC data indicates continued expansion in liquidity despite the Monetary Policy Committee’s (MPC) hawkish measures to tighten liquidity and control inflation.
• Also, the latest data from the Nigerian Bureau of Statistics (NBS) shows an inflation rate of 34.2% in June 2024, up from 22.8% in June 2023.
• Food inflation, which stood at 40.9% YoY in June, continues to be the primary driver for the surge in headline inflation.
• To accurately assess the effect of food inflation on households, the NBS’s Cost of a Healthy Diet (CoHD) metric calculates the minimum income required for households to afford a healthy diet.
• The national average CoHD rose to NGN1,241 in June, up 19.2% m/m from N1,041 in May and 45.0% year-to-date (YTD) from N858 in January.
• At the zonal level, the South-West Zone had the highest average CoHD at N1,545 per day, up from N1,198 in May. In contrast, the North-West Zone reported the lowest average CoHD at N956 per day, compared to N787 in May.
• At the state level, Ekiti State had the highest average CoHD at N1,640, up from N1,145. Conversely, Katsina State reported the lowest average CoHD at N878 per day, down from N907 in May.
• The CoHD by food group revealed that animal-source foods were the most expensive, at N433 per day, up from N374 in May. In contrast, legumes were cheaper, at N83 per day, compared to N77 per day.
• Looking ahead, the imbalance between the escalating money supply and the dwindling food and oil production will likely persist, further eroding consumer purchasing power and escalating living costs, particularly for low-income households.