Nigeria’s inflation rebound stokes concerns of worsening economic woes

Onome Amuge

The battle against soaring inflation seems to be far from won in Nigeria, with analysts warning of even darker days ahead as the country struggles to emerge from its economic crisis.

Amidst this mounting crisis, President Bola Tinubu’s pledge of “renewed hope” seems to offer little but empty promises, leaving citizens disillusioned and frustrated as they battle exorbitant cost increases and unprecedented levels of inflation.

With economic relief nowhere in sight, Tinubu’s words ring hollow, offering little more than false optimism in the face of an ongoing financial catastrophe.

In the latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) for September 2024, the inflation rate jumped to 32.70 percent, a steep incline of 0.55 percent from the previous month’s rate of 32.15 percent, undoing two months of declines in inflation figures and marking a new high watermark for food prices and transportation costs.

The CPI report showed that the year-on-year inflation rate surged by 5.98 percent to 32.70 percent, a stark contrast to the 26.72 percent recorded in the same month in 2023.

The report further revealed that, on a month-on-month basis, the headline inflation rate accelerated in September 2024 to 2.52 percent, up from 2.22 percent in August 2024, signalling a rapid rise in average price levels.

Driven by the double-edged sword of a depreciating Naira

and rise in the cost of petrol, which surged past the N1000/litre benchmark (a historic high), Nigeria’s financial woes continue to deepen, leaving the average citizen gasping for financial air amidst a sea of rising costs and ongoing economic instability.

As inflation continues to grip the Nigerian economy, households and businesses alike remain under intense pressure, contending with the combined challenges of escalating PMS/energy costs, elevated borrowing costs, weak exchange rates, and increasing supply chain and logistics expenses, amid other uncertainties.

The overall confidence in Nigeria’s macroeconomic outlook remained frail in September 2024, a reflection of the persistent inflationary risks that analysts attribute to structural factors, including insecurity, climate risks, fuel scarcity, and rising energy costs. These factors are expected to continue to exert pressure on the economy in October 2024, hindering economic growth and stability.

Prior to the NBS inflation report, the Central Bank of Nigeria (CBN),in its September 2024 Inflation Expectations Survey (IES), revealed that Nigerians continue to be deeply concerned about inflation, as about 58.5 percent of respondents described the country’s inflation rate as high, with both businesses and households reporting a negative outlook.

The CBN survey which solicited feedback from 1,750 businesses and 1,665 households across the country, identified several key drivers of inflation, including surging energy costs, rising transportation expenses, currency exchange rate volatility, and security challenges. These factors were identified by respondents across all sectors as significant contributors to the steep increase in the cost of living for Nigerians.

Commenting on the recent rise in inflation rate, Tope Adaramola, the executive secretary of the Nigerian Council of Registered Insurance Brokers (NCRIB), remarked that the surge in inflation will hit ordinary Nigerians the hardest.

Adaramola noted that with their limited economic leeway, the rising cost of living will intensify the financial struggles already faced by the majority of Nigerians, especially those who receive fixed incomes.

Adaramola stated that those who receive fixed salaries, such as civil servants and low-income earners, will bear the brunt of the rising inflationary pressure. He explained that, due to their fixed income, these individuals have limited means to counteract the effects of inflation and will, as a result, be disproportionately affected by the surge in prices.

“The worst hit will be pensioners because there will be  a serious diminution in their disposable income,” he added.

Olutoyin Ayoade, managing director of financial services firm, MBC Securities, anticipated that the inflation rate for October, due to be released on November 15, will exceed the September rate.

In response to this prediction, Ayoade asserted that given the sustained inflationary pressures, the firm does not foresee a rate cut at the next monetary policy committee (MPC) meeting.

Furthermore, Ayoade noted that, if the MPC decides to raise interest rates, it could lower rates on fixed income instruments to reduce the debt management office’s obligations and the money supply, or opt for a marginal increase in rates.

Concerning the impact of the inflation in the equity market, he stated, “We still expect a bullish run and increased buying interest in the equity market. We expect investors to position themselves for final year dividends.”

Samuel Sule, CEO of Renaissance Capital Africa, concurred with the sentiment that inflation will remain the primary determinant of activity in the fixed income markets and will continue to dictate the MPC’s conventional policy responses.

Amidst the mounting economic challenges posed by rising inflation, the Centre for Promotion of Private Enterprise (CPPE) has advocated for a comprehensive government-led approach to tackling inflation in Nigeria.

The CPPE underscored the urgency for government intervention in addressing the numerous economic hurdles that are hampering production, productivity, and security across various sectors, in order to alleviate the financial strain placed on the average Nigerian and create a more conducive economic environment for growth and prosperity.

The non-governmental organisation, which is dedicated to the advancement and protection of private enterprise in Nigeria, also identified the importance of incentivising the real sector of the economy, enabling businesses to lower production costs and boost profitability, thereby offsetting the debilitating effects of inflation.

Muda Yusuf, the chief executive of CPPE, presented the recommendations  in response to the plummeting purchasing power of Nigerians, as inflation continues to wreak havoc on the country’s economy.

Reacting to the news, Yusuf stressed that the revival of high inflationary pressures is an alarming development, undermining the efficacy of monetary policy measures to curb inflation.

The experienced economist, in his analysis, stated: “It is troubling that we are witnessing a resurgence of high inflationary pressures after some few months of respite despite policy measures to tame inflation, especially on the monetary side. Purchasing power had continued to plunge over the past few months. The situation had been further exacerbated by the surging petrol price.

After three months of deceleration, the inflation numbers had returned to a spiraling path. Headline inflation rose to 32.7% in September 2024 as against 32.15% in August 2024, an increase of 0.55%. There was also a marginal increase of 0.30% in month-on-month inflation between August and September. Food inflation maintained its uptrend rising to 37.77% from 37.52% after decelerating a few months ago.”

Yusuf also discussed the numerous factors contributing to the inflationary pressures, stating that these factors are predominantly supply-side issues that have yet to be adequately addressed.

According to the immediate past director general of the Lagos Chamber of Commerce and Industry (LCCI) , the depreciating exchange rate, surging fuel prices, rising transportation costs, supply chain disruptions, high energy costs, climate change-induced flooding, insecurity in farming communities, and structural bottlenecks to production are all contributing to the persistent inflationary pressures in Nigeria.

Furthermore, he noted that seasonal fluctuations in agricultural outputs also play a role in the seasonal price fluctuations that exacerbate inflation.

Yusuf highlighted the adverse ripple effects of inflationary pressures on the Nigerian economy, emphasising that the escalation of production costs, coupled with weak profitability and investor confidence, has had detrimental repercussions on the manufacturing sector and the economy at large.

He also mentioned the limitations faced by investors in their ability to transfer cost increases to consumers, a phenomenon that further erodes their profit margins.

This adverse scenario, he cautioned, results in a vicious cycle where weakened profitability diminishes investors’ confidence, exacerbating the already precarious situation of the economy.

The CPPE chief further underscored the necessity for the government to provide financial relief to domestic industrialists by offering concessionary import duties on intermediate products.

“The effects of high energy cost and exchange rate on inflation is quite significant. It will be very difficult to tame inflation if we do not substantially  fix power, logistics and forex and security issues.

“Regrettably,  there are no quick fixes in these areas.  But it is important to prioritize these issues and drive accelerated progress with the right strategies.

“Hopefully the proposed economic stabilization measures embodied in a bill currently before the national assembly would substantially address these concerns from the fiscal side,” he added.

While advocating for the critical role of the federal government in curbing inflation, Yusuf also emphasised the importance of the sub-national governments’ involvement in addressing the issue of food insecurity and food inflation.

According to him, the state governments possess a comparative advantage in mitigating these challenges due to their close proximity to the stakeholders in the agricultural and food value chain.

As a result, he asserted that they are well-positioned to enhance agricultural productivity and ensure food security by leveraging their unique insights and access to the local communities.