Is Nigeria’s inflation on the path of easing?

There are indications that Nigeria’s headline inflation may begin to slow as the figure for April came in lower than expected.

But analysts are betting that consumer prices may not ease anytime soon given the low productivity in the agricultural sector, exchange rate fluctuations and the threefolds increase in electricity tariffs for Band A users.

Tajudeen Ibrahim, director of research and strategy, Chapel Hill Denham, said inflation is expected to moderate, adding that its deceleration may not be that sharply to touch 21 percent forecast by the country’s apex bank.

“We do not see inflation falling to 21% by the end of this year because of factors such as exchange rate and food crises, particularly when you consider the insecurity in major food producing regions of the country,” Ibrahim said.

Ibrahim stated that all these factors are fuelling consumer price, having a negative impact on the country’s inflation.

“We are yet to see the full impact of the PMS hike during a brief period of scarcity in mid-April (after the typical NBS’ data collection window) and the full effect of the electricity tariff for Band A users is still building. We should see these impact m/m readings in May reading,” Mobifoluwa Adesina, research analyst at Afrinvest Consulting Ltd said.

“Despite the slight moderation in the past two months, we expect an uptrend to resume in m/m pressure (ceteris paribus), due to build-up in energy goods prices.

“By June, m/m and y/y headline inflation rates are likely to peak but y/y headline inflation should resume an uptrend by September,” the analyst further said.

Adesina projects that May’s headline inflation should rise slightly faster to 2.4 percent month-on-month which translates to 34.3 percent year-on-year.

“However, the ongoing off-season harvest in the North and the continued positive impact of the less costly Dangote refinery diesel output on the cost of logistics and transportation of farm produce could provide some positivity to the risks,” Adesina said.

The country’s consumer price index rose from 33.20 percent in March to 33.69 percent in April for the 16th consecutive time.

While the inflation rate increased by 11.47 percentage points year-on-year compared to 22.22 percent it stood last April, it decelerated month-on-month by 0.73 percent.

“On a month-on-month basis, the headline inflation rate in April 2024 was 2.29%, which was 0.73% lower than the rate recorded in March 2024 (3.02%).

“This means that in the month of April 2024, the rate of increase in the average price level is less than the rate of increase in the average price level in March 2024,” the NBS said.

Even as food inflation increased to 40.53 percent in April from 40.01 percent it stood in March, it rocked the projections of many analysts.

According to the NBS, food, non-alcoholic beverages, housing, water, electricity, gas and other fuel were the top drivers of the country’s headline index.

“Prices continue to be driven by many factors and we believe a few significant elements will determine future inflation including minimum wage discussions, money supply, exchange rates and fiscal policy,” Samuel Sule, the chief executive officer of Renaissance Capital Africa told BusinessDay.

“Many of these factors are still being determined thus the trajectory for inflation (outside of the base effect) remains uncertain,” he added.

As inflation remains at a 28-year high, the central bank led by Olayemi Cardoso has continued to maintain its hawkish stance, hiking interest rates by a combined 750 basis points to 26.25 percent.

The CBN is dishing out inflationary targeting measures to rein in inflation to 21 percent by end 2024.

“Inflationary pressures are expected to decline in 2024 due to the CBN’s inflationary targeting policy aiming to rein in inflation to 21.4 per cent, aided by improved agricultural productivity and easy global supply chain pressures,” Cardoso had said earlier this year.

Uchenna Uzo, professor of marketing and faculty director at Lagos Business School said inflation may decline but not to as low as 21 percent as projected by the CBN.

Uzo noted that as inflation continues to rise, there has been no increase in the minimum wage nor in the real incomes of consumers.

“So we are getting to a situation where there would be a sharper drop in demand for products and services which would force businesses to reconsider their prices.

“We will see a drop in the country’s inflation but it’s going to be a mild and moderate drop, not 21 percent envisaged by the CBN,”

In a corresponding outlook, the International Monetary Fund holds that the country’s headline inflation is expected to decline to 23 per cent next year and then 18 per cent in 2026.

“Nigeria’s current approach to attaining positive real rates by only raising interest rates, as currently being implemented by the Central Bank of Nigeria (CBN), is reactionary at best.

“Both inflation and interest rates need to be tackled simultaneously and not in silos as is currently the case,” a source conversant with the matter said.

The source argued that to effectively tackle inflation, the CBN’s monetary policy must be complemented by addressing the underlying supply issues that drive up the cost of doing business.