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Nigeria’s headline inflation is expected to further decelerate in August 2024, primarily driven by high base effects and food seasonal harvest, analysts at Lagos-based research FBNQuest Capital said in a note on Tuesday.

“We expect headline inflation to taper further in August due to the impact of the positive base effect and the continued food harvest season,” the analysts said.

Africa’s most populous nation saw its consumer prices soar to as high as 34.19 percent in June before declining to 33.40 percent in July after a 19th consecutive increase.

The 80 basis points decrease in July makes it the first time Nigeria’s headline inflation will moderate since December 2022 but still at a 28-year high.

“The recent increase in fuel prices will exert a significant upward pressure on Nigeria’s inflation basket,” Tobi Ehinmosan, a fixed income analyst said, adding that while July’s inflation moderated due to high base effect, “Nigeria’s headline inflation remains high”.

Food inflation, which accounts for over 50 percent of Nigeria’s headline inflation, also decelerated to 39.58 percent in July, fanning hopes of respite to households who have endured the worst economic crisis in a generation.

But with an inevitable hike in pump price, Nigeria might not be out of the woods yet in its fight to combat rising prices and weakening purchasing power.

CBN may take a back seat on monetary tightening

August’s expected fall in inflationary pressures may result in the Central Bank of Nigeria (CBN) hitting the brakes on further interest rate hikes.

“Given the anticipated moderation in August’s inflation figure, the Monetary Policy Committee may be nearing the end of its rate hike cycle.

“As a result, we anticipate that the committee will adopt a wait-and-see approach during its meeting later this month to assess the effects of previous rate hikes on the economy and monitor price developments,” FBNQuest Capital said.

Ehinmosan, a macroeconomic analyst said that the increase in fuel prices does not bode well for the CBN’s monetary policy committee (MPC) which has remained hawkish in its fight against rising inflationary pressures.

The Abuja-based bank under Olayemi Cardoso has through the MPC, raised the benchmark interest rate by a combined 800 basis points to 26.75 percent in less than a year. This is in a bid to rein in inflationary levels.

But a lingering fuel scarcity and hike in pump prices may frustrate the apex bank’s target to beat down prices to 21 percent by the end of the year.

Pump price hike may reverse gains, stoke inflation in September

The recent hike in pump price may potentially erode the gains recorded from the high base effects and continuous monetary tightening of the apex bank and further leading to a rise in September’s figure.

Prices of premium motor spirit (PMS) rose from about N600 to N897 at the state-owned Nigerian National Petroleum Corporation (NNPC) while other outlets sell as much as N900 and N1,000 per litre.

Samuel Sule, chief executive officer of Renaissance Capital Africa, said the almost 40 percent increase in fuel price outlet may stoke prices, especially that of transportation, explaining that “the passthrough effect of transportation costs will reduce the effects of the base effect.”

This steep increase in this essential commodity (petrol) has seen transport fare surge by almost 50 percent, exacerbating the burdens of Nigerians and fueling an increased cost of living.

“There are downside risks stemming from the inflationary impact of the increase in premium motor spirit prices to NGN897/per litre from about NGN600/per litre affecting transportation, food, and other goods and services,” analysts at FBNQuest Capital said.