Nigeria’s inflation rate is on course to rise to its highest in more than 18 years in December, dampening Christmas spending for cash-strapped consumers.
This soaring inflation is expected to spur the Central Bank of Nigeria (CBN) to raise its benchmark interest rate in its next meeting. The Monetary Policy Committee last met in July, when it increased the rate for the eight straight time to 18.75 percent.
According to the National Bureau of Statistics (NBS), consumer prices rose to a fresh 18-year high of 28.20 percent in November, the same as in August 2005, from 27.33 percent in October.
“Inflationary pressures are set to build from here. The fuel subsidy’s removal will continue to add to inflation through second-round effects. And the naira’s fall in value against the dollar will continue to push up inflation too,” David Omojomolo, Africa economist at Capital Economics, said.
Bumper rate hike expected in January
He said the CBN would deliver aggressive interest rate hikes to restore its credibility and bring down inflation.
“The governor’s comments last month highlighted that a new inflation targeting framework is being prepared. At the next Monetary Policy Committee meeting, we have pencilled in an interest rate hike of 400bp, to 22.75 percent.”
The International Monetary Fund has urged the apex bank to hike interest rates in the next meeting to address the country’s high inflation rate.
“The central bank, under its new leadership, has started to withdraw excess liquidity that was in the system and contributing to high inflation. The next Monetary Policy Committee meeting should further raise the policy interest rate,” it said in a statement.
A recent report by KPMG Nigeria described the country’s inflation as cost-push inflation, projecting it to hit 30 percent by December.
“We also note that sustainably taming inflation would require not only monetary responses which are generally more apt for addressing demand-pull inflation, but also addressing underlying supply-side problems driving cost-push inflation,” the report said.
It added that it required focusing on ways to boost local production, improve local infrastructure, cut energy and transportation costs and boost foreign exchange inflow.
The NBS report highlighted that the food inflation rate, which constitutes more than 50 percent of headline inflation, was 32.84 percent in November, compared to 24.13 percent a year earlier.
“The rise in food inflation on a year-on-year basis was caused by increases in prices of bread and cereals, oil and fat, potatoes, yam and other tubers, fish, fruit, meat, vegetables and coffee, tea and cocoa,” it said.
Analysts at Comercio Partners noted that food inflation printing above 30 percent depicts higher food prices and further strains to food supply within the Nigerian economy.
“With a depleting FX reserve, high exchange rate and costly food distribution, we foresee higher inflation rates in the ensuing months,” they said.
President Bola Tinubu in May scrapped a costly but popular petrol subsidy and lifted currency controls in June, which he said was to save the country from going under.
But his actions have worsened inflation. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
The removal of the petrol subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.
The naira has plunged to record lows across markets since the CBN allowed it to weaken by as much as 40 percent against the dollar in June.
The official exchange rate increased from N463.38/$ to N889.86/$ as of Friday. At the parallel market, the naira depreciated to N1,186/$ from 762/$.
Following 11 consecutive months of acceleration, the battle against inflation must be intensified by the CBN, said Chinyere Almona, director general of Lagos Chamber of Commerce and Industry (LCCI).
“We anticipate economic agents, including households and businesses, to continue to deploy strategies that will mitigate inflationary pressures,” she added.
The World Bank’s latest Nigeria Development Update report revealed that rising inflation and sluggish growth in Africa’s biggest economy increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.
This means that from January to November, an additional 14.2 million people fell into poverty.
“The impact of this inflation is especially hard on the poor and vulnerable. The Government has initiated targeted cash transfers to mitigate some of the impact on the most vulnerable households. In addition, a holistic approach to reducing inflation, including through tighter fiscal and monetary policies, is also needed,” the report said.
Analysts at SBM intelligence said in a recent report that Nigerians spend 97 percent of their monthly income on food.
“Removing subsidies has led to an increase in the prices of goods and services such as fuel and food. This has made it difficult for people to afford necessities such as food and transportation,” they said.
“The economic change has also affected people’s ability to earn a living wage. Many people have lost their jobs or experienced decreased income due to the economic downturn.”
LCCI recommends that by promoting economic diversification, implementing effective interest rate policies, managing the exchange rate judiciously and embracing inflation targeting, the CBN can contribute significantly to ensuring the stability of the naira and fostering a robust and resilient economy.
“Further, we implore the government to address the challenges inhibiting domestic production and ease the bottlenecks to the distribution of goods within the country. Finally, we urge the government to continue to address the problems of insecurity and other factors affecting agricultural productivity in the country to improve food supply,” it said.