Economists have linked the nation’s rising inflation to the continued depreciation of the naira and high fuel prices.
They spoke as the country’s inflation hit 29.90 percent for January 2024.
The new data from the National Bureau of Statistics on Thursday showed that Nigeria’s inflation rate climbed to 29.90 percent in January 2024 from 28.92 percent recorded in the previous month
January’s inflation rate of 0.98 percent increase reflects that the inflation rate in the country is yet to slow down, puncturing projections by the Central Bank Governor, Yemi Cardoso, to reduce inflationary pressure this year.
According to its Consumer Price Index and inflation report, major contributors to inflation were food and non-alcoholic beverages (15.49 percent), housing, water, electricity, gas, and other fuel (5.00 percent).
Others include clothing and footwear (2.29 percent), transport (1.95 percent), furnishings and household equipment and maintenance (1.50 percent), education (1.18 percent), and health (0.90 percent).
The CPI measures the average change over time in the prices of goods and services consumed by people for day-to-day living.
The development further adds pressure on the Central Bank’s monetary policy committee to sharply raise interest rates at a February 26-27 meeting — its first in seven months.
The report read, “In January 2024, the headline inflation rate increased to 29.90 percent relative to the December 2023 headline inflation rate which was 28.92 percent.
“Looking at the movement, the January 2024 headline inflation rate showed an increase of 0.98 percent points when compared to the December 2023 headline inflation rate. Similarly, on a year-on-year basis, the headline inflation rate was 8.08 percent points higher compared to the rate recorded in January 2023, which was 21.82 percent.
“This shows that the headline inflation rate (year-on-year basis) increased in January 2024 when compared to the same month in the preceding year (i.e., January 2023).
“Furthermore, on a month-on-month basis, the headline inflation rate in January 2024 was 2.64 percent which was 0.35 percent higher than the rate recorded in December 2023 (2.29 percent).
“This means that in January 2024, the rate of increase in the average price level is more than the rate of increase in the average price level in December 2023.”
In January 2024, the food inflation rate in Nigeria reached a high of 35.41 percent, marking an 11.10 percent increase from January 2023 when it was 24.32 percent.
On a month-by-month comparison, the food inflation rate for January 2024 rose by 3.21 percent, which is 0.49 percent higher than December 2023 (2.72 percent).
The NBS said this increase is driven by higher prices in essential food items like bread, cereals, potatoes, yams, oils, fats, fish, meat, and fruits, as well as coffee, tea, and cocoa.
However, the average annual rate of food inflation for the 12 months leading to January 2024 increased to 28.91 percent, showing a 7.38 percent rise from the 21.53 percent recorded in January 2023.
The inflation rate in cities for the reported month was 31.95 percent, while in rural areas, it was slightly lower at 28.10 percent.
Recently, protests erupted across the country in response to the high cost of living. Citizens in Niger, Kano, Kogi, Ondo, and other states demanded solutions to the economic crisis.
Despite the government’s promise to release grains for the poor, the prices of essential commodities remain high.
Recently, the World Bank disclosed that the continued spike in inflation would push a further 2.8 million people into poverty by 2023’s end.
Economists react
The Chief Executive Officer of Financial Derivatives Company Limited, Bismarck Rewane attributed the continuous rise in inflation to a combination of factors including a weaker naira, high diesel prices, cost of logistics, and the cross-elasticity effect on domestic commodities (substitutes).
Bismarck said a research note said, “The NBS published its official inflation numbers today. As forecast by FDC Think Tank, Nigeria’s headline inflation rate jumped to 29.90 percent from 28.20 percent.
The naira has depreciated following the removal of fuel subsidy and the unification of the exchange rate market by President Bola Tinubu.
“This rise is due to a combination of factors including a weaker naira, high diesel prices, cost of logistics, and the cross-elasticity effect on domestic commodities (substitutes). Also notable is the amplified Inflation expectations of consumers which have risen significantly compared to prior months.”
Further, Bismarck said the Monetary Policy Committee would likely raise the monetary policy rate otherwise known as interest rate by 200bps by the time the committee meets on February 26 and 27.
“In view of the foregoing, the MPC is expected to maintain its hawkish stance in a bid to rein in inflationary pressure.
“Analysts posit the likelihood of MPC raising the policy rate by at least 200 basis points (bps) to 20.75 percent p.a. from the current rate of 18.75 percent p.a. In the past, an increase in the policy rate has not affected the general rate but this time it may likely do,” Bismarck said.
CPPE reacts
The Chief Executive Officer of Centre for the Promotion of Private Enterprises, Muda Yusuf, said the persistent inflationary pressures continue to be a troubling phenomenon.
Reacting to inflation figures released by the NBS, Yusuf said in a statement on Thursday that the purchasing power had continued to slump over the past few months pushing Nigerians into poverty.
The CPPE CEO bemoaned that as inflation maintained an upward trend economic growth may remain subdued while the risk of stagflation heightens
“Regrettably, the major inflation drivers are not receding, if anything, they have become even more intense. These include the depreciating exchange rate, surging transportation costs, logistics challenges, forex market illiquidity, astronomical hike in diesel cost, insecurity in farming communities and structural bottlenecks to production. These are largely supply side issues.
“The weakening of the naira against the currency of our neighboring countries [CFA], has continued to incentivise the outflow of agricultural products to these countries. This is complicating the supply side challenges, especially of food crops,” the CEO said.
According to Yusuf, the high inflation is causing increased pressure on production costs, making it harder for businesses to maintain profitability. This, in turn, is eroding shareholder value and lowering investor confidence.
However, Former Zenith Bank Chief Economist, Marcel Okeke said such a target is unrealistic due to several factors which are currently militating against Nigeria’s economy.
The economist told The PUNCH that such assumptions raise questions about how the CBN plans to miraculously reduce the current inflation rate of 29.9 percent to 21 percent, especially with an exchange rate benchmark of N750/$1.
Okeke said the investment climate in the country needs to be secure and appealing for foreign direct investment.
Another economist Dr. Alias Aliyu argued that the country’s inflation is largely mainly driven by high food prices worsened by food production.
He told The PUNCH that to fix the problem of high inflation the government must improve the supply chain and produce more.
He added that farmers were still worried due to the high level of insecurity in the country.
“The President declared a food security emergency, but we haven’t seen any significant changes yet. When you announce a food emergency, we expect more farming and better irrigation, but that hasn’t happened.”
Further, he lamented that the high interest rates for borrowing remained too high for manufacturers who now avoid production.
