Paper victory
Nigeria’s inflation rate dropped for the second consecutive month in August 2024, falling to 32.15% year-on-year from 33.40% in July…
Nigeria’s inflation rate dropped for the second consecutive month in August 2024, falling to 32.15% year-on-year from 33.40% in July, according to the National Bureau of Statistics (NBS). This marks a 1.25 percentage point decrease from July, though inflation remains 6.35 points higher than in August 2023. Month-on-month inflation for August 2024 stood at 2.22%. Food inflation fell to 37.52% from July’s 39.53% but remains significantly higher than August 2023’s 29.34%. Despite the slowdown, analysts caution that inflation may rise again due to recent petrol price hikes, worsening the ongoing cost-of-living crisis.
As inflation reached record highs, analysts anticipated that a combination of high statistical base effects and collapsing demand — stemming from a sharp decline in purchasing power — would help to slow inflation rates. The Central Bank of Nigeria (CBN) has implemented a series of high interest rates through its Monetary Policy Committee, which seems to have effectively curtailed further inflation growth, particularly given the limited tools at its disposal. This approach has contributed to the recent decline in inflation figures, but these numbers do not fully capture the harsh realities faced by consumers struggling with reduced disposable income. Looking ahead, there are reasons for concern. We expect inflation to rise again in September due to recent hikes in energy prices, particularly power costs and petrol, which is nearing or exceeding ₦1000 per litre. This spike in fuel prices is expected to escalate logistics costs significantly, impacting the supply chain and potentially undermining the benefits of the harvest season. As transportation and distribution become more expensive, these increased costs could seep into consumer prices, thus exacerbating inflationary pressures. Although inflation has shown a slight decrease for two consecutive months, the recent surge in petrol prices could compel the Monetary Policy Committee to adopt a cautious “wait and see” approach during their next meeting. This might lead them to maintain the current benchmark interest rate rather than making any drastic changes. Such a decision would reflect a desire to assess the longer-term impacts of these energy price hikes on inflation and economic stability. On the fiscal side, it is crucial for the federal government to tackle the pervasive issue of insecurity, which continues to pose a significant barrier to local food production and overall economic stability in Nigeria. Insecurity disrupts agricultural activities and inhibits investment in critical sectors, ultimately hindering efforts to stabilise food prices and promote sustainable growth. Addressing these underlying challenges will be essential to fostering an environment where inflation can be managed effectively, ensuring that consumers are not left to bear the brunt of rising costs without adequate support.