Nigeria’s inflation at 15.75% in December surpasses CBN year-end target

Nigeria’s December inflation, which quickened to a three- year high, surpassed the yearend target set by the Central Bank of Nigeria (CBN).

The CBN in its third-quarter economic report had said that “headline inflation, which has been on a steady rise since the start of the year, is expected to continue along its upward trajectory until the end of the year, accelerating to 14.5 percent by end-december 2020.”

But that didn’t come as projected by the apex bank after inflation accelerated for the 16 consecutive months from 14.89 percent in November to 15.75 percent in December, according to data from the National Bureau Statistics (NBS), caused by an increase in both food prices and prices of other items apart from food (core inflation).

A higher than expected level of inflation would affect badly the already weak purchasing power of Nigerians, and eat deeper into already lean wallets, making them poorer the more.

It would also discourage savings and investments by eroding further the real value of money. Higher inflation would also increase borrowing cost for individuals and businesses, and worsen pressure on the already troubled naira.

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For more than 4 years, the CBN has been fighting to lower soaring inflation, which has been above its single-digit target.

Headline inflation of Africa’s biggest economy entered double digits in 2016 after a huge plunge in petrodollars, caused the CBN to embark on rationing dollar sales.

That caused the prices of imported goods to head north as importers were unable to access greenback easily. Commodity prices peaked at a record high of 18.72 percent in January 2017, NBS data shows

The situation, however, began to cool with an increase in dollar inflows into the reserve, the establishment of the Investors and Exporters Window in April 2017 that aided increased dollar sales, and lastly, the decision of the apex bank to reign in higher inflation by hiking interest rate.

Fast forward today, inflation has bucked that trend, caused by a host of factors including an unsustainable move by the Nigerian government to shut the land border, as well as the heightened insecurity in the northern region that has hindered farmers from cultivating crops on their farmlands.

Both have since caused a shortfall in the supply of key food items, with food inflation ending the year at 19.56 percent while core inflation like transportation cost jumped to 11.37 percent.

Going Forward

The CBN more than ever, can best be described as being stuck between the devil and the deep blue sea.

While the apex bank might be considering using an ineffective Monetary Policy Rate ( MPR) to fight fiscally- induced inflation, it would also be bothered about the health of an ailing economy which entered into recession for the second time in five years.

The economy contracted by 6 percent and 3.2 percent in the second and third quarter of the year after being hard- hit by the economic and health impact of the recession. That necessitated a dovish authority to take a dovish stand last year, cutting benchmark interest for two-straight time to N11.5 percent

While the conscious reopening of the land borders would help tame soaring commodity prices, a major downside to this is the hike in electricity tariffs and an increase in the pump price of fuel.

Africa’s most populous country has also approved an N13.6 trillion fiscal spend for the year 2021, and that could fuel ballooning prices by leading to what economists call two much money chasing few goods, other things being equal.

The Federal Government expects inflation to slow to 11.95 percent by the yearend of 2021.

Whether or not the inflation projection for 2021 is possible would depend on how well both monetary and fiscal authorities swing into action by checking rising food prices and solving the lingering FX crisis.