Nigerians may soon face a renewed inflation surge due to continuous rising petroleum prices as announced by the Nigerian National Petroleum Commission, despite the Central Bank of Nigeria’s (CBN) efforts to curb rising prices.
Analysts are predicting that inflation for September could climb to 32.3 percent, primarily driven by higher petrol prices. This comes as CBN Governor Yemi Cardoso continues to battle inflationary pressures amid volatile economic conditions.
In his first year in office, Cardoso has raised Nigeria’s benchmark interest rate five times, amounting to an 850 basis-point increase. This aggressive monetary tightening was aimed at reining in inflation, which had spiralled due to excessive government spending through “ways and means.” As a result, interest rates now stand at a significant 27.25 percent.
These measures appeared to bear fruit in July 2024, when annual headline inflation dipped to 33.4 percent, marking the first decline in 19 months. Inflation further eased to 32.5 percent in August, creating the narrowest gap between the interest rate and inflation seen this year. This led many analysts to expect a pause in further rate hikes. However, the CBN’s Monetary Policy Committee (MPC) opted for a surprise 50 basis-point hike during its last meeting.
Cardoso explained that the decision was based on persistent economic challenges, including food inflation, the impact of widespread flooding on agricultural output, and rising petrol and energy prices. These factors have led analysts to revise their inflation forecasts upward for September.
The Financial Derivatives Company Limited, an economic think tank, projects headline inflation will increase slightly by 0.22 percent to 32.37 percent. This uptick is expected to be driven by recent petrol price hikes, exchange rate volatility, and the impact of flooding on northern Nigeria’s agriculture sector. The report also anticipates a modest month-on-month inflation increase to 2.38 percent from August’s 2.22 percent.
The rising cost of petrol has significantly impacted Nigerian consumers and businesses alike. Last week, the Nigerian National Petroleum Corporation (NNPC) raised petrol prices again, with rates now ranging from N950 to as high as N1,030 per litre in some regions. This is the second petrol price hike in two months, further straining household budgets and pushing up transportation and commodity prices.
Businesses are also feeling the pinch, with many passing on the increased costs of energy and loans to consumers, leading to higher prices across the board. The challenges faced by manufacturers and businesses are further exacerbated by high borrowing costs, as the CBN’s rate hikes have made credit more expensive.
At the core of Nigeria’s inflation woes is the imbalance between monetary and fiscal policies. Cardoso has stressed the need for oil production to be ramped up to support the economy. He also called for greater economic diversification, noting that without solid economic fundamentals, the CBN’s measures can only achieve limited success.
The central bank’s tightening policies have succeeded in attracting foreign portfolio investments, with $3.48 billion flowing into the country during the first half of 2024.
However, the continued depreciation of the naira, which has lost 70 percent of its value under President Bola Tinubu’s administration, remains a concern. The naira currently averages 1,621.12 to the dollar at the Investors and Exporters window.
