Nigeria’s monthly inflation rate soared to a seven-year high in June, after President Bola Tinubu scrapped fuel subsidies and allowed the currency to weaken before declaring a state of emergency to control staple food costs.

Prices rose 2.1% in the month, the most since May 2016, and annual inflation quickened to 22.8% from 22.4% in May, according to the data published on the National Bureau of Statistics’ website. That was less than the median estimate of seven economists in a Bloomberg survey of 23%.

The annual and monthly upswings were fueled by higher food prices. Annual food inflation quickened to 25.3% in June from 24.8% a month earlier and monthly to 2.4% from 2.2%

Since taking over as president from Muhammadu Buhari in late May, Tinubu has rid the country of costly fuel subsides introduced in the 1970s and eased foreign-exchange controls, which have driven up transport and import costs.

The currency has dropped about 40% against the dollar over the past month and pump prices have almost tripled.

The acceleration in both annual and monthly inflation, and expectations that price pressures will remain elevated may persuade the central bank’s monetary policy committee to increase interest rates later this month.

The impact of the subsidy removal and exchange rate weakness will likely filter through into the July data, Bismarck Rewane, chief executive officer of Financial Derivatives Co. in Lagos said by phone.

“The exchange rate effect came up at the end of June, into July. The price of wheat for instance was increased on July 1. The price of bread is going up on July 27,” Rewane said. “The inflation rate will be nothing less than 25% or 26% for July.”

The MPC has lifted rates by 700 basis points since May 2022 to 18.5% to contain an inflation rate that’s been at more than double the top end of its 6% to 9% target range for over a year. It raised rates by 50 basis points at its two previous meetings.

“Another 50 basis points is what I believe will be delivered by the next meeting, because inflation expectations are still very much on the rise due to ongoing foreign currency and fiscal reforms,” Mosope Arubayi, an economist at IC Group said ahead of the release.

The MPC is due to deliberate on interest rates on July 24-25, at a meeting to be presided over by Folashodun Shonubi, who has been acting as governor since Godwin Emefiele was suspended last month.

Bloomberg