Nigeria’s annual inflation has remained elevated despite varying reforms by the Central Bank of Nigeria (CBN) targeted at easing the 28-year-high consumer price index.
June inflation quickened to 34.19 percent from 33.95 percent in May 2024, and will likely force an interest rate hike by the CBN’s Monetary Policy Committee (MPC) on Tuesday.
The uptick in prices for the 18th straight month means the value of the naira has further fallen as the purchasing power shrinks, pushing many households into the poverty threshold.
The World Bank estimates that more than 87 million Nigerians have been pushed below the poverty line, making the nation the world’s second-largest poor population after India.
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At the recent BusinessDay CEO Forum, Olayemi Cardoso, CBN governor, stated that the monthly inflation rate has declined between February and May by 50 percent, indicating that the bank’s monetary policies are 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 will 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. The MPR is the benchmark interest rate for the economy.
“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 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.
Read also: CBN to maintain hawkish stance as inflationary pressure persists
“As monetary policy has a long and variable lag, 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 it 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 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 (NBS).
Prices of food ticked higher to 40.87 percent in June 2024, up from 40.66 in May 2024, with garri, yam, rice and tomatoes rising by over 100 percent over a year.
“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 main focus is tackling inflation, it cannot do that alone as the main driver of inflation is food inflation. And the production of food is not within the CBN’s remit,” Simon said.
He noted 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.
