Exchange rate pass-through may push inflation to 22.8% June – Rewane

Exchange rate pass-through effect (which saw naira depreciates by 42.79 per cent) on domestic prices is likely to accelerate inflation rate to 22.8 per cent in the month of June.
“One of the key developments in June was the de-segmentation of the forex market, which led to a 42.79 per cent depreciation in the value of the naira at the import and exchange (I&E) window (N825/$).
“In addition, the exchange rate for computing import duty was adjusted by 40 per cent to N589.45/$ from N422.3/$. This is expected to push up the prices of commodities with import content. Already, the price of flour has increased by five per cent while the impact on other commodities will be more pronounced in July”, said Bismarck Rewane, Chief Executive Officer (CEO) of Financial Derivatives Company (FDC) Limited.
The Consumer Price Index (CPI) report for June is scheduled to be published by the NBS on July 15th.
(Based on our time series model and survey of major retail markets in the Lagos Metroplex, headline inflation is projected to surge by 0.39 per cent to 22.8 per cent in June, with food inflation rising to 24.85 per cent (18-year high) due to the Eid-el-Kabir celebration and planting season effect. Notably, the price of pepper jumped by 225 per cent to N65,000 while the price of tomatoes peaked at N110,000 before slipping back to N75,000″, a recent publication of the FDC said.
The seesaw price movement was more in response to consumer resistance and switching to substitutes. The customer behavior in the local markets has been a classic example of the income and substitution effect of price changes.
It will be recalled that headline inflation rate accelerated for the fifth consecutive time to 22.41 percent in May, according to data by the National Bureau of Statistics (NBS) released yesterday.
In May, it rose to a new 17-year high of 22.41 percent in May, 2023 from 22.22 percent in the month of April.
For the month of May, a breakdown of the NBS report shows that food and non-alcoholic beverages contributed most to the acceleration in the headline inflation with (11.61 per cent) followed by housing water, electricity gas & other fuel (3.75 per cent), clothing & footwear (1.71 per cent) and transport (1.46 per cent).
Others are furnishings & household equipment and maintenance (1.13 per cent), education, (0.88 per cent), health (0.67 per cent), miscellaneous goods and services (0.37 per cent), restaurant and hotels (0.27 per cent), alcoholic beverage, tobacco and kola (0.24 per cent), recreation and culture (0.15 per cent) and communication (0.15 per cent).
The report also revealed that food inflation, which constitutes 50 per cent of the inflation rate, rose to 24.82 per cent in May from 24.61 per cent in the previous month. The food inflation rate was also 5.33 percentage points higher compared to the rate recorded in May last year (19.50 per cent).

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