We hope the Central Bank of Nigeria (CBN) can tame the inflation rate, which appears untamed given its persistent month-to-month rise—a clear signal of the pressure on the monetary authority.
As Nigeria grapples with soaring inflation, the burning question is whether the ambitious target of 21.4 percent can be achieved in the remaining two quarters of 2024. While the CBN has set this target, the Nigerian Economic Summit Group (NESG) projects a slightly higher rate of 21.5 percent.
“Additionally, supply chain shocks, driven by both domestic issues and global events, have compounded these problems, leading to shortages and price hikes across various sectors.”
The current scenario
Nigeria’s economy has been facing difficult challenges. Inflation surged to a staggering 33.95 percent in May 2024, up from 33.69 percent in April, according to a report by the National Bureau of Statistics (NBS). This sharp increase highlights the persistent economic challenges facing the country.
Among the primary factors driving this inflation are significant food and core inflation rates, which stood at 40.66 percent and 27.04 percent, respectively, as shown in Trading Economics data.
Food inflation, exacerbated by local production inefficiencies and rising global commodity prices, continues to strain household budgets. Core inflation, influenced by housing, utilities, and transport costs, also remains a critical concern.
Technical issues in local production can be attributed to several factors: insecurity, transport costs, fertiliser costs, and environmental issues. Insecurity remains a pressing concern in Nigeria, severely impacting local farm production. Armed conflicts, banditry, and attacks disrupt agricultural activities, leading to significant losses.
Akinwunmi Adeshina, President of the African Development Bank, has highlighted that insecurity is a major threat to food security in Nigeria. According to the Africa Report, armed groups target commercial farm projects, causing substantial damage.
For example, a cassava starch production company lost over N300,000,000 ($699,743) worth of investment when herdsmen raided their 500-hectare pilot project in Ekiti State.
The insecurity level is so high that some farmers must pay a ransom to kidnappers or bandits to access their farms. This has become an ongoing norm in a country ranked 5th in military power in Africa, according to Newsranger in 2024.
Transportation challenges also exacerbate the problem. The high cost of transporting food from the more productive northern states to the less productive southern states is significant. This is largely due to the increase in fuel costs following the removal of subsidies.
The naira’s depreciation has made imports more expensive, further fueling inflation. The CBN has been actively intervening in the foreign exchange market to stabilise the naira, but maintaining this stability is a delicate balance. Any significant depreciation of the naira can lead to higher costs for imported goods, driving up domestic prices and exacerbating inflation.
Additionally, supply chain shocks, driven by both domestic issues and global events, have compounded these problems, leading to shortages and price hikes across various sectors.
For example, geopolitical tensions like the ongoing conflict between Russia and Ukraine have significantly impacted commodity prices. The disruption in the supply of wheat and flour has caused a ripple effect, driving up the prices of related goods and exacerbating inflation across the board.
Fortunately, the Central Bank of Nigeria (CBN) has been taking decisive measures to stabilise the economy. It has tightened monetary policy by raising the monetary policy rate (MPR) by 750 basis points from 18.75 percent to 26.25 percent within just three months.
This aggressive move seems to be having an effect, as indicated by the persistent decline in the monthly inflation rate from the first quarter to May. The changes in the inflation rate are as follows: February (1.8 percent), March (1.5 percent), April (0.49 percent), and May (0.26 percent).
However, the road ahead remains uncertain. While these measures have shown some success, food inflation and core inflation continue to pose significant challenges, not showing a similar magnitude of decline.
This discrepancy suggests that while monetary policy is a crucial tool, it may not be sufficient on its own. Structural issues such as food production inefficiencies and supply chain disruptions still need to be addressed to achieve long-term stability.
While the CBN’s efforts are commendable, execution matters. Coordinated efforts across government agencies are vital to ensuring policies are effective. This requires strong leadership and efficient implementation mechanisms.
The government’s track record on this front has been mixed, with some initiatives failing to deliver the expected results due to bureaucratic inefficiencies and corruption.
Economists remain cautiously optimistic. Gbenga Alawode, a renowned economist, believes that achieving the 21.4 percent inflation target is feasible if policies align with ground realities. “We need synchronised efforts,” he emphasises. “The government, private sector, and international partners must work together to address the root causes of inflation.”
Gbenga highlights the importance of data-driven decisions and regular assessments of inflation trends. “Policymakers need to be flexible and responsive,” he says. “Adjustments should be evidence-based, targeting the sectors where inflation is most severe.
For instance, focusing on food production can significantly curb food inflation, while stabilising the currency can mitigate import-driven inflation.”
Moreover, he stresses the need for structural reforms to tackle supply chain disruptions. “Addressing infrastructure deficits, enhancing agricultural productivity, and improving security are crucial steps,” Gbenga notes. “Without these, monetary policy measures alone will not suffice.”
From the look of things, reducing the inflation rate from 33.95percent to 21.4percent—a difference of 12.55percent—in just six months is a formidable challenge. While theoretically possible, the realities on the ground suggest otherwise.
Environmental issues like floods damaging farms, persistent insecurity, and other systemic shocks show no sign of abating. There is currently no clear methodology to address all these issues comprehensively.
Additionally, supply chain disruptions and currency instability further complicate the situation. Given these factors, achieving the targeted rate by the end of 2024 seems highly unlikely. Policymakers must prioritise sustainable and strategic interventions to navigate these economic hurdles effectively.
The Path Forward
Data-driven decisions:
Regular assessments of inflation trends are crucial. The CBN and other government agencies must continuously monitor the economic environment and adjust policies based on empirical data. This proactive approach can help in making timely interventions to curb inflation.
Sector-specific strategies:
Targeting high-inflation sectors, such as food, energy, transport, and housing, can yield significant results. For instance, investing in agricultural technology and infrastructure can boost food production and reduce reliance on imports. Similarly, policies that promote renewable energy sources can help stabilise energy prices.
Strengthening institutions:
Building robust institutions that can implement and monitor economic policies effectively is vital. This includes enhancing the capacity of government agencies, improving transparency, and reducing corruption.
Uncompromised security:
Ensuring uncompromised security in policy implementation and economic operations is essential. This involves safeguarding against kidnapping, banditry, vandalism, cyber threats, and ensuring the integrity of financial systems.
Introducing zero duties on staple food imports and opening borders for these items can stabilise prices and enhance food availability, contributing to overall economic stability.