Inflation in Nigeria has accelerated at a troubling pace, reaching 33.9% year-on-year in October, up from 32.7% in September.
This marks one of the steepest rises in recent months, raising questions about the underlying drivers of this inflationary trend and the challenges facing the country’s economy.
The National Bureau of Statistics released the latest data on Friday, which exceeded analysts’ median forecast of 33.4%.
The surge underscores the persistent pressures affecting Africa’s largest economy.
What’s fueling Nigeria’s inflation?
The sharp rise in inflation can be attributed to several interlinked factors, including a depreciating currency, elevated food prices, and increased fuel costs:
- Currency depreciation: The naira has lost 45% of its value this year, making it the world’s third-worst-performing currency. This decline has driven up the cost of imports, further fueling domestic price increases.
- Food prices: Food inflation climbed to 39.2% in October, up from 37.8% the previous month. Key staples such as corn and rice have seen significant price hikes due to supply chain disruptions and higher import costs.
- Fuel costs: Rising gasoline prices, coupled with ongoing subsidy removals, have added another layer of pressure, increasing transportation costs and subsequently impacting consumer goods prices.
The central bank’s response
The Central Bank of Nigeria (CBN) has raised interest rates at 13 consecutive monetary policy meetings, bringing the policy rate to 27.25% from 11.5% in May 2022.
Despite these measures, inflation continues to outpace expectations, challenging the bank’s ability to stabilize prices.
Economists expect further action at the upcoming MPC meeting on November 26.
A 100-basis-point rate hike is widely anticipated as the central bank seeks to contain inflation and achieve positive real interest rates to attract investment.
David Omojomolo, Africa economist at Capital Economics, noted,
The reversal in disinflation trends is likely to push the CBN to extend its rate-hiking cycle, despite concerns about economic growth.
Global and domestic challenges
Nigeria’s inflation woes are exacerbated by external and domestic challenges:
- Global energy prices: Geopolitical tensions and supply chain disruptions have kept oil prices volatile. As a major importer of refined petroleum, Nigeria has faced higher costs, which ripple across the economy.
- Subsidy removal: The government’s decision to end fuel subsidies earlier this year, while fiscally prudent, has contributed to rising consumer prices.
- Supply chain disruptions: Persistent logistical issues and inefficiencies in the agricultural sector have driven up food prices, which account for a significant portion of Nigeria’s inflation basket.
Economic impact of rising inflation
The rapid rise in inflation poses risks to Nigeria’s economic growth.
The economy is already forecast to expand by a modest 0.5% this year, with growth projections for 2025 and 2026 at just 1.3%.
Higher prices are eroding household purchasing power and could dampen consumer spending, a critical driver of economic activity.
Moreover, the widening gap between inflation and the policy rate—currently about 660 basis points—underscores the challenges for monetary policymakers.
Is relief in sight?
While inflation is expected to moderate in 2024 as the effects of fuel price hikes and naira depreciation fade, any relief may be slow and uneven.
Structural issues such as weak infrastructure, policy uncertainties, and global market volatility continue to weigh on Nigeria’s economic prospects.
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