Nigeria’s Headline Inflation Expected to Rise as Food Prices Soar

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May 15, 2024/FBNQuest Research

We focus on the domestic landscape to continue discussing global inflationary pressures. Nigeria’s headline inflation has witnessed heightened inflationary pressures, driven by a continued food and core inflation surge. The recent inflation reading shows that the headline rate surged by 150bps to 33.20% y/y in March, a slower pace than an acceleration of 180bps to 31.70% y/y in February 2024. It also marks a fifteenth consecutive monthly rise in the headline rate.

  • While the core inflation rose by 77bps to 25.90% y/y, food inflation, which accounts for a significant portion of Nigeria’s inflation basket, increased at a more rapid pace of 209bps to 40.01% y/y in March.
  • The persistent rise in food prices can be attributed to lingering security concerns in food-growing regions, logistics challenges, and infrastructure deficits.
  • The pass-through effect from the currency depreciation on domestic food prices is another contributory factor to the soaring food prices.
  • The CBN has maintained a hawkish stance in addressing inflationary pressures. The monetary authority raised the Monetary Policy Rate (MPR) to 24.75% and adjusted other policy parameters to tighten monetary policy conditions.
  • We feel it is premature to evaluate the effectiveness of the CBN’s previous rate hikes because of the time lag in the transmission mechanism between policy rate changes and inflation, estimated at about four (4) months.
  • However, we are starting to see the effect of the Bank’s policy tightening measures on inflation indicators.
  • For instance, in March, m/m inflation readings for the headline and food inflation measures decelerated slightly by -10bps m/m and -17bps m/m to 3.02% and 3.62%, respectively.  
  • Additionally, the broad money supply (M3) and the M2 money supply, which the MPC closely monitors, decelerated m/m in March.
  • Regardless, we are of the opinion that the dominant drivers of Nigeria’s inflationary pressures are mainly due to supply-side and structural factors.
  • As such, the MPC’s tightening measures may not be completely effective in addressing the sustained inflationary pressures in the country.
  • Consequently, we believe that coordinated efforts by both monetary and fiscal authorities will be necessary to address ongoing inflationary pressures effectively.
  • Looking ahead, we anticipate an upward trend in headline inflation in April driven by rising food and core measures.

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