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Nigeria’s inflation rate drops to 33.40% in July, first decline in 19 months

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2 years ago

on

August 15, 2024

By

Olusegun Odunewu

Nigeria faces unprecedented cost-of-living crisis amid surging inflation

Nigeria’s inflation rate fell to 33.40% in July, marking the first decline in 19 months, according to the National Bureau of Statistics (NBS).

This is a slight decrease from the 34.19% recorded in June.

The NBS reported a 0.8% drop in the Consumer Price Index (CPI), which tracks changes in the prices of goods and services.

READ ALSO: Food inflation has declined massively – Bayo Onanuga

Year-on-year, the inflation rate was still 9.32 percentage points higher compared to July 2023, when it was 24.08%.

Food inflation also decreased to 39.53% in July, down from 40.87% in June, though it remains significantly higher than the 26.98% rate seen in July 2023.

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Rising Tensions Between Regulators and Airlines The financial strain has coincided with renewed friction between the Nigeria Civil Aviation Authority (NCAA) and the Airline Operators of Nigeria (AON), following disputes over the remittance of statutory charges and the delivery of regulatory services. Operators say the situation reflects deeper systemic liquidity stress across the sector, where airlines are increasingly unable to meet overlapping obligations imposed by aviation agencies while maintaining operational stability. A Layered and Fragmented Tax System At the centre of industry complaints is what operators describe as a “multi-layered and excessive” taxation structure involving the NCAA, the Federal Airports Authority of Nigeria (FAAN), and the Nigerian Airspace Management Agency (NAMA). Airlines such as Air Peace, Ibom Air, and United Nigeria Airlines are subject to a range of compulsory charges, including the 5% ticket levy, passenger service charges, value-added tax on tickets and aviation inputs, and other operational deductions collected at different stages of the value chain. Industry players argue that the system creates cash flow distortions because several charges are collected upfront or deducted at source, leaving airlines with reduced working capital for day-to-day operations. Beyond ticket-based deductions, carriers also face landing fees, parking charges, overflight fees, navigation levies, and ground handling costs. Combined with jet fuel, which accounts for a significant share of total operating expenses, analysts say profitability on many domestic routes has been severely constrained. Leasing Constraints and Foreign Exchange Pressure Airlines’ challenges are compounded by difficulties in aircraft acquisition and leasing, which remain essential for fleet expansion in the absence of strong local financing options. Most carriers rely on wet and dry lease arrangements from international lessors. Wet leases, which include aircraft, crew, maintenance, and insurance, allow quick capacity deployment but are costly and typically paid in foreign currency. Regulatory limits also restrict their use to short-term arrangements. Dry leases offer more operational control and long-term stability but are increasingly difficult to secure. International lessors often view Nigeria as a high-risk environment due to concerns over aircraft repossession and currency volatility, resulting in higher insurance premiums, security deposits, and financing costs. As a result, airlines are frequently forced into short-term leasing agreements, exposing them to exchange-rate fluctuations and operational disruptions that contribute to flight delays and cancellations. Fuel Costs Deepen Financial Strain Jet A1 fuel remains one of the largest cost drivers in the sector, further squeezing margins across domestic routes. With fuel expenses, taxes, and leasing obligations combined, industry analysts say many airlines are operating with extremely narrow or unstable margins. Operators warn that without coordinated policy reforms, sustained profitability and expansion in the sector will remain difficult. Calls for Structural Reform Aviation stakeholders are calling on the federal government to streamline overlapping charges, review the newly introduced 5% levy, and consider removing VAT on aviation inputs to ease cost pressures. They are also advocating for reforms to centralise fee collection processes, improve transparency in regulatory charges, and support more stable aviation fuel supply mechanisms. In addition, industry groups are pushing for the development of a local aircraft leasing framework to reduce dependence on expensive international markets. Outlook While policymakers continue to explore potential incentives, including tax relief measures and leasing reforms, airlines say they are already adjusting operations through capacity cuts, route optimisation, and tighter financial controls. For now, Nigeria’s domestic carriers remain under significant pressure, navigating what industry players describe as one of the most financially challenging periods in recent years.

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