Recent discussions among market analysts have highlighted the potential resurgence of inflationary trends in Nigeria, influenced by factors such as the depreciation of the naira and rising fuel prices. As the National Bureau of Statistics prepares to release the inflation figures for September, previous data indicated that Nigeria’s inflation rate was at 32.15 percent in August, which showed a continued decline from July’s rate of 33.40 percent. Meristem Research analysts have predicted a modest increase in September’s headline inflation rate to 32.21 percent, emphasizing a slight decline in food inflation to 37.26 percent while core inflation is expected to rise to 27.94 percent from 27.58 percent in August.
The analysts provided a framework for their projections, noting that while food inflation may see some relief, it could be countered by rising transportation costs driven by higher fuel prices. With the harvest season improving the supply of staple foods, a temporary decrease in food inflation is anticipated. Conversely, a surge in petroleum prices—around 42.68 percent—largely attributed to fuel scarcity is expected to elevate core inflation, as fuel prices saw a sharp increase during that period. Additionally, a slight depreciation of the naira by 4.31 percent further supports the outlook of rising inflation overall.
Johnson Chukwu, Managing Director of Cowry Asset Management Limited, has echoed concerns regarding the potential return of inflationary pressures due to skyrocketing fuel prices, which affect the cost of goods and services. He noted that despite the decline in inflation to 32.15 percent in August 2024, largely due to improved agricultural yields, the anticipated increase in fuel prices—exceeding N1,000 per litre—could reverse the declines seen in inflation, especially as Nigeria approaches the fourth quarter of 2024. This scenario raises alarms about the fragility of recent gains in inflation control.
Moreover, Chukwu pointed out that the Central Bank of Nigeria’s (CBN) monetary policy measures may face challenges due to longstanding structural issues within the economy. Issues such as inadequate infrastructure, high fuel costs, an unreliable power supply, and logistical bottlenecks may impede the effectiveness of the CBN’s tight monetary stance. These structural impediments present hurdles that could ultimately limit the success of policy measures aimed at stabilizing prices and curbing inflationary tendencies.
Since February 2024, under the leadership of Olayemi Cardoso, the CBN has pursued aggressive monetary tightening strategies to tackle inflation, which included rising the Monetary Policy Rate (MPR), increasing the Cash Reserve Ratio for both Deposit Money Banks and Merchant Banks, and providing higher yields on fixed-income securities. This tough approach is believed to have positively affected investment inflows into Nigeria, attracting foreign capital searching for better returns amid economic uncertainties. The latest report from the National Bureau of Statistics indicates that the benchmark interest rate now stands at 27.25 percent following the monetary policy committee’s meeting at the end of September.
In summary, while analysts anticipate a slight increase in Nigeria’s inflation rate for September due to rising fuel prices and the depreciation of the naira, there is also hope that improved agricultural yields may offer some temporary relief in food prices. The effectiveness of the CBN’s monetary policy remains uncertain, facing headwinds from structural issues that continue to challenge economic stability. The aggressive tightening approach adopted by the CBN aims to attract investment, yet rising fuel costs and ongoing logistical problems pose significant risks to potential recovery and price stabilization for Nigerian consumers and businesses.
