Nigeria’s long battle against inflation continues as prices defy interventions

Nigeria’s annual inflation has remained elevated despite varying reforms by the central bank to ease the now 28-year high consumer price index.

June’s inflation quickened to 34.19 percent from 33.95 percent in May 2024, despite the apex bank’s assurance that its policies are addressing the increasing cost of goods and services.

The uptick in prices for the 18th straight month means the value of the naira will be reduced as purchasing power shrinks, pushing many households into the poverty threshold.

The World Bank estimated that more than 87 million Nigerians have been pushed below the poverty line, making Nigeria the world’s second-largest poor population after India.

In a recent public appearance, Olayemi Cardoso, the governor of the Central Bank of Nigeria, stated that the monthly inflation rate had declined between February and May, by 50 percent, indicating that the bank’s monetary policies were working.

However, month-on-month inflation grew by 0.17 percent to 2.31 percent in June 2024 from 2.14 percent in May 2024, after slowing for three straight months.

“The major drivers of inflation during the year included adverse spillovers from supply chain disruptions, higher energy and food prices, due to the removal of PMS subsidy, exchange rate reforms, and widespread insecurity,” the CBN said in its debut macroeconomic outlook.

Samson Simon, chief economist ARKK Economics & Data Limited said inflation would remain elevated throughout the year while growth in price level may cool off on the back of bumper harvest and the president’s tariff-free food importation.

“The economy will remain largely overheated for the foreseeable future,” Simon said.

Meanwhile, analysts at Coronation Registrars predict that the heightened inflation rate may translate into another Monetary Policy Rate (MPR) hike, making the rate increase four times this year.

“Experience tells us that nothing stays the same, but today’s inflation print, at 34.19% y/y for June (May: 33.95%) does not augur well for a CBN rate cut next week. So high rates are likely to persist for a while yet, in our view,” the Coronation report stated.

The Cardoso-led MPC has raised the lending rate by a combined 750 basis points to 26.25 percent since its first meeting in February but the monetary reform actions have not yet tapered the soaring inflation.

Simon noted that raising interest rates might not have been effective in tackling high inflation thus far, cautioning that instead of aggressively hiking rates, the impact of previous increases should be observed.

“As monetary policy has a long and variable lag, hence the CBN should not be too hawkish and for too long,” the Abuja-based economist said.

Shuaib Idris, managing director, Time-Line Consults, said a further hike in the MPR will not have the desired effect in reducing inflation, noting that the government should find ways to mop up excess liquidity in the economy.

“If the CBN doesn’t reduce the rates, they should leave it as it is. The quantum leap in the MPR is too high, and is strangulating the business environment,” Idris said.

“The actual value of a dollar in naira terms should be about N900. But because of this excess liquidity, we are now working with about N1560/$. What we need is a liquidity squeeze, to remove the excess liquidity in the system,” he added.

In the short term, higher interest rates may rein in inflation. It however hurts businesses as borrowing costs will continue to rise with the burden passed on to the consumers, piling pressure on their spending.

“Although the rise in MPR may attract more investors to the fixed-income market due to higher yields, it has negatively impacted borrowing costs for businesses,” PwC said in its Nigeria’s economic outlook in June.

Food inflation continues to be the major driver of Nigeria’s inflation, accounting for more than 50 percent of the consumer price index, according to the National Bureau of Statistics.

Prices of food ticked higher to 40.87 percent in June up from 40.66 in May 2024 with garri, yam, rice and tomatoes rising by over 100 percent.

“The rise in food inflation was due to low agricultural productivity, poor logistics and insecurity in the food-producing regions of the country” PwC said.

Analysts have called for more fiscal measures to complement the reforms of the monetary authorities to stem the tide of accelerating inflation.

“Even though the CBN’s raison d’etre is tackling inflation, the CBN alone cannot do so as the main driver of inflation is food inflation. And the production of food is not within the CBN’s remit,” Simon said.

He added that to come out of the woods, there is a need to tackle insecurity for farmers to go back to their farms which will in turn increase agricultural yield through affordable and improved farm inputs.

The Abuja-based economist further stated that increasing tractorisation and other mechanisation of farming and providing enough storage facilities to reduce the wastage of farm produce may quell the flames of inflation in a not-too-distant time.

Meanwhile, the Cardoso-led CBN aims to tame inflation to an ambitious 21 percent by the end of the year. For PwC, inflation is expected to drop to 29.5 percent which many analysts agreed to be more feasible.