By Adedapo Adesanya
Nigeria’s inflation continued its upward trend in October 2024, impacted by rises in the price of food, electricity, and fuels, as it came in at 33.88 per cent, relative to the September 2024 headline inflation rate of 32.70 per cent and with this development, Nigerians can expect another hike in interest rates when it meets next week (November 25 and 26) in Abuja.
According to the National Bureau of Statistics (NBS) last Friday, the headline inflation rate increased by 1.18 per cent points compared to the September 2024 Headline inflation rate. On a year-on-year basis, the Headline inflation rate was 6.55 per cent points higher than the rate recorded in October 2023 (27.33 per cent).
Also, Nigeria’s food inflation rate in October 2024 shot up to 39.16 per cent on a year-on-year basis, 7.64 per cent points higher compared to the rate recorded in October 2023, which came in at 31.52 per cent.
At its last Monetary Policy Committee (MPC) meeting in September, the Central Bank of Nigeria (CBN) said it would continue to tighten monetary policy as part of its inflation-targeting efforts.
The country had recorded a slowdown in inflation in July and August 2024, but the CBN said at the meeting that core inflation was still high and landed a surprising 50 basis points hike to borrowing costs.
Experts shared with Business Post that the prevailing Nigerian environment with recent increases in food, electricity, and fuel costs will only see Nigeria increase its lending rate.
The rationale for increasing interest rates is that higher interest rates increase the cost of borrowing for individuals and businesses. This creates a ripple effect that reduces loans spent on items like homes, cars, and investments and curbs overall spending in the economy.
Normally, low interest rates can lead to excessive borrowing and investments in assets that will then inflate their prices.
Also, increased interest rates make saving more attractive as depositors earn more on their savings. It is widely accepted that saving reduces the demand for goods and services and thus helps to stabilize prices.
Within the last five months, the CBN has increased interest rates by 100 basis points or 1 per cent. In July, the rate was increased by 50 basis points to 26.75 per cent from 26.25 per cent. Later, in September the MPC announced another 50 basis points to 27.25 per cent.