Muhammad Sani Abdullahi, Deputy Governor of the Economic Policy Directorate at the Central Bank of Nigeria (CBN), presented projections indicating a substantial rise in headline inflation. Abdullahi disclosed these forecasts during the CITI-CEEMA Macro Conference held in London on March 20, 2024.
Drawing from insights shared during Abdullahi’s presentation, the anticipated surge in inflation, expected to soar to 32.63% in March 2024, is ascribed to three critical factors: escalated energy costs, the reverberations of exchange rate fluctuations, and persistent concerns surrounding insecurity.
Abdullahi’s presentation noted the following drivers of inflation:
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
High Energy Prices: The removal of fuel subsidies has triggered a ripple effect, leading to escalated expenses across various sectors including household utilities, transportation, and production costs.
Exchange Rate Passthrough: The depreciation of the naira, influenced by market-determined exchange rate policies, is anticipated to exert a passthrough effect on domestic prices, amplifying inflationary pressures.
Insecurity: Lingering security challenges have disrupted food production activities, coinciding with the conclusion of the harvest season. Additionally, inflated costs of farm inputs further exacerbate the inflationary trend, particularly in the food sector.
Despite the somber outlook, the CBN remains cautiously optimistic, foreseeing a potential reversal in the inflation trajectory commencing from May 2024. This optimism is underpinned by a strategic framework designed to mitigate inflationary pressures through various initiatives.
Key measures outlined by the CBN to combat inflation include the adoption of an Inflation Targeting Framework, enhanced communication strategies, and a pivot towards a more stringent monetary policy stance.
Notably, the Monetary Policy Rate (MPR) has been subject to a significant hike of 400 basis points, soaring to an unprecedented 22.75%. Simultaneously, the Cash Reserve Ratio (CRR) has been adjusted upwards to 45%, from the previous 32.5%. Furthermore, adjustments have been made to the asymmetric corridor surrounding the MPR, signaling a robust approach to managing inflation expectations.
In light of persistent inflationary pressures, in February 2024, Nigeria’s headline inflation rate surged to 31.70%, marking a notable increase from 29.90% recorded in January 2024. This surge persisted despite the robust adjustment of the Monetary Policy Rate (MPR), highlighting the entrenched structural impediments within Nigeria’s economy.
Murtala Sabo Sagagi, a member of Nigeria’s Monetary Policy Committee (MPC), noted the limitations of traditional monetary policy tools in addressing systemic issues such as insecurity and food shortages.
Sagagi’s remarks underline the need for a comprehensive approach including economic and social rejuvenation to effectively tackle Nigeria’s inflationary challenges. Experts have warned that without addressing these underlying issues, any monetary policy adjustments may yield limited results in controlling inflation rates.
With Nigerians barely surviving under the current inflation rate, economists warn that inflation at 32.63% will come with dire implications, permeating various facets of the economy. Such high inflation rates, they say, erode purchasing power, exacerbate poverty levels, and hamper economic growth.
In addition to businesses facing heightened uncertainty, leading to reduced investment and job creation, they warn that vulnerable populations, particularly those on fixed incomes, will be forced to bear the heightened brunt of soaring prices, further exacerbating income inequality.
However, they advised that addressing these challenges requires a multi-pronged approach, encompassing both monetary and fiscal measures, alongside structural reforms to address underlying vulnerabilities.