FDC projects further decline for Nigeria's July inflation

Financial Derivatives Company projects a further decline in Nigeria's headline inflation for the month of July after it fell to 17.75 per cent in June, marking the third consecutive month of decrease. Damilola Akinbami, Head of Research at FDC, explained in an interview with CNBC Africa that while the inflation rate is on a downward trajectory, it does not necessarily mean that price pressures have disappeared entirely. Akinbami emphasized that despite the declining inflation rate, price pressures are still prevalent. The fundamental factors driving inflation remain unchanged, with the upcoming harvest season expected to temporarily ease price increases due to an uptick in supply. However, he cautioned that these price decreases are only temporary, and underlying factors such as supply chain disruptions and global commodity price fluctuations continue to exert upward pressure on prices. A key observation from FDC's survey of select markets in Lagos, Abuja, and Kano was the mixed trend in prices for various commodities. For example, the price of New Yam dropped from 2000 Naira to 1500 Naira in June, driven by increased supply post-harvest. Similarly, stable prices were noted for commodities with high water content like tomatoes, as traders faced storage challenges leading to price reductions. On the other hand, commodities like peppers maintained high prices, with consumer resistance and income loss from the COVID-19 pandemic influencing consumption patterns. Consumer behavior has shifted towards more rational choices, with some individuals cutting back on certain commodities or opting for cheaper alternatives. Despite the potential for price moderation in the short term, Akinbami highlighted ongoing challenges such as supply chain disruptions and potential energy cost increases due to global factors like rising oil prices and policy changes like the Petroleum Industry Bill implementation. These factors are expected to keep inflation elevated in the medium to long term, especially as consumer income levels continue to decline, limiting overall demand.