Nigeria’s headline inflation may be starting to slow, as April’s figures came in lower than expected. However, analysts caution that consumer prices are unlikely to ease significantly in the near future due to persistent issues in the agricultural sector, exchange rate volatility, and a substantial increase in electricity tariffs for Band A users.
Tajudeen Ibrahim, Director of Research and Strategy at Chapel Hill Denham, noted that while inflation is expected to moderate, it may not decline sharply enough to reach the 21% forecast by Nigeria’s central 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 given the insecurity in major food-producing regions of the country,” Ibrahim explained.
Ibrahim emphasized that these factors continue to drive up consumer prices, negatively impacting the country’s inflation rate. Mobifoluwa Adesina, a research analyst at Afrinvest Consulting Ltd, added that the full impact of the mid-April PMS hike and the increase in electricity tariffs for Band A users are yet to be fully realized. Adesina predicted that May’s month-on-month headline inflation would rise to 2.4%, translating to 34.3% year-on-year.
Despite a slight moderation in the past two months, Adesina expects upward pressure on prices to resume due to rising energy costs. “By June, month-on-month and year-on-year headline inflation rates are likely to peak, but year-on-year headline inflation should resume an uptrend by September,” Adesina stated.
The country’s consumer price index rose from 33.20% in March to 33.69% in April, marking the 16th consecutive increase. Although the inflation rate increased by 11.47 percentage points year-on-year compared to 22.22% last April, it decelerated month-on-month by 0.73 percentage points. “In April 2024, the rate of increase in the average price level was less than that in March 2024,” reported the National Bureau of Statistics (NBS).
Food inflation, a significant component of the headline index, increased to 40.53% in April from 40.01% in March, contrary to many analysts’ projections. According to the NBS, the primary drivers of the country’s headline index include food, non-alcoholic beverages, housing, water, electricity, gas, and other fuels.
Samuel Sule, CEO of Renaissance Capital Africa, highlighted the complexity of predicting future inflation, citing factors like minimum wage discussions, money supply, exchange rates, and fiscal policy. “Many of these factors are still being determined, so the trajectory for inflation remains uncertain,” he added.
As inflation remains at a 28-year high, the central bank, led by Olayemi Cardoso, has maintained a hawkish stance, raising interest rates by a combined 750 basis points to 26.25%. The Central Bank of Nigeria (CBN) aims to bring inflation down to 21% by the end of 2024 through inflation targeting measures.
CBN Governor Cardoso expressed optimism that inflationary pressures would decline in 2024 due to the bank’s policies, improved agricultural productivity, and easing global supply chain pressures. However, Uchenna Uzi, Professor of Marketing and Faculty Director at Lagos Business School, believes inflation will decline but not to the projected 21%. “We will see a drop in the country’s inflation, but it’s going to be a mild and moderate drop, not the 21% envisaged by the CBN,” Uzi commented.
The International Monetary Fund also projects that Nigeria’s headline inflation will decline to 23% next year and then to 18% by 2026. An informed source argued that the CBN’s current strategy of raising interest rates is insufficient, emphasizing the need to address underlying supply issues driving up costs. “Both inflation and interest rates need to be tackled simultaneously and not in isolation,” the source suggested.
