In 2024, Nigeria grappled with significant inflationary pressures that tested the resilience of its economy and the efficacy of the Central Bank of Nigeria’s monetary policy. As of mid-2024, the country’s inflation rate surged to a 28-year high, with November figures reaching 34.6 per cent.
This rise was driven by a combination of factors, including surging food prices, higher energy costs, and the ripple effects of critical economic reforms such as the removal of fuel subsidies and currency unification policies.
The inflationary spiral in Nigeria was fueled primarily by structural and policy-driven challenges. The removal of the longstanding fuel subsidy caused petrol prices to triple, cascading into higher transportation costs and an increase in the prices of goods and services. Additionally, the unification of exchange rates led to a devaluation of the naira, increasing the cost of imports and exacerbating inflationary pressures.
Moreover, supply chain disruptions and persistent insecurity in key agricultural regions constrained food production, contributing to higher food prices, which constitute a significant portion of Nigeria’s Consumer Price Index
In response to these inflationary pressures, the Central Bank of Nigeria adopted an aggressive monetary tightening stance. Over the course of the year, the CBN raised the Monetary Policy Rate five times, bringing it to a historic high of 27.25 per cent by September 2024. These rate hikes were aimed at reducing money supply and curbing inflation.
While these measures demonstrated the CBN’s commitment to price stability, their effectiveness was undermined by structural factors that monetary policy alone could not address. Exchange rate volatility, rising fiscal deficits, and supply-side constraints continued to push inflation upward, limiting the impact of higher interest rates.
Despite the CBN’s tightening measures, inflation remained stubbornly high, with October 2024 figures at 33.88 per cent.
Nigeria’s headline inflation has defied both fiscal and monetary efforts as the figures hit 34. 60 per cent in November 2024.
Food inflation also rose to 39.93 per cent during the period despite interventions of the monetary authorities.
Analysts projected that the headline inflation rate would average 32.57 per cent for the year, significantly overshooting the CBN’s target.
The International Monetary Fund (IMF) predicted a gradual decline in inflation, expecting it to end the year at 24 per cent year-on-year. However, achieving this target proved challenging due to persistent inflationary pressures.
The high inflation environment in 2024 had profound implications for businesses and households. Rising prices eroded purchasing power, leading to lower consumer demand and higher poverty levels. Businesses faced higher operating costs, reduced margins, and difficulties accessing affordable credit due to elevated interest rates.
Foreign investment, a key driver of economic growth, was also negatively impacted. Investors remained cautious amidst concerns about exchange rate instability, policy uncertainty, and the overall macroeconomic environment.
While the CBN’s monetary tightening measures were necessary, experts said they were insufficient to address the root causes of Nigeria’s inflation, noting that a more comprehensive approach is required to achieve sustainable price stability and economic growth.
They also contend that addressing structural issues such as insecurity, poor infrastructure, and low productivity in agriculture is critical to reducing supply-side inflation. Investments in irrigation, storage, and transportation infrastructure can boost food production and lower costs.
Some economic experts have said that Nigeria’s rising inflation is difficult to tackle without fixing the foreign exchange crisis and epileptic power situation in the country.
The experts who shared the same view on Nigeria’s inflationary pressure said the surge in prices is eroding the purchasing power of the Naira, thereby dragging many Nigerians into poverty.
The Chief Executive Officer of the Centre for the Promotion of Private Enterprises, Muda Yusuf and Professor of Capital Market, Uche Uwaleke, said this in reaction to the consumer price index.
Yusuf, however, told NewsNGR, “It will be very difficult to tame inflation if we do not fix power, logistics and forex. Regrettably, there are no quick fixes in these areas. But, it is important to prioritise these issues and drive accelerated progress with the right strategies.”
The CPPE CEO said the persistent inflationary pressures in the Nigerian economy continue to be a major cause for concern, especially because of the acceleration effect on poverty.
He said the effect of inflation is eroding the purchasing power of Nigerians, which has continued to fall over the past few months.
Yusuf said, “Economic growth may remain subdued while the risk of stagflation heightens. Key inflation drivers are not receding. If anything, they have become even more intense.
“These factors include the depreciating exchange rate, surging transportation costs, logistics challenges, forex market illiquidity, astronomical hike in diesel cost, climate change, insecurity in farming communities and structural bottlenecks to production.
“Elevated inflationary pressures also aggravate pressure on production costs, weaken profitability, erodes shareholders’ value and dampen investors’ confidence. Not many producers or service providers can transfer cost increases to their consumers.”
Uwaleke in his comment on the matter, said the trend in the inflation rate is quite worrisome considering how it is impacting the “purchasing power of the naira and by extension on poverty level.”
He argued that inflation was partly responsible for the increasing dollarisation of the Nigerian economy and the demand pressure in the forex market.
Uwaleke added, “In view of the supply-side factors driving inflation in Nigeria including rising cost of transport, energy, flooding and insecurity, the government must play complementary roles to that of the CBN through tackling insecurity, massive investments in power and agriculture in partnership with the private sector as well as ensuring the speedy resuscitation of the refineries in order to bring down the cost of transport as well as help naira appreciation in the forex market when an end is put to import of petroleum products.”
The experts said that enhanced coordination between monetary and fiscal policy is essential, noting that reducing fiscal deficits through efficient public spending and increased revenue generation can alleviate inflationary pressures.
They contended that stabilizing the naira through improved forex policies and rebuilding external reserves is crucial to managing import costs and curbing inflation.
Nigeria’s inflation crisis in 2024 underscored the limitations of monetary policy in isolation. While the CBN’s monetary tightening agenda demonstrated a commitment to combating inflation, the persistence of high inflation rates highlighted the need for a more holistic approach.
By addressing structural inefficiencies, ensuring fiscal discipline, and implementing targeted social interventions, Nigeria can build a more resilient economy capable of weathering future challenges.