Nigeria’s Inflation Conundrum: A Ticking Bomb

July 24, 2024
Damilola Soyomokun
Economy

Nigeria’s inflation rate has been on a steady rise since 2018; various economic analysts have stated that the rise was due to the boarder closure which led to a sharp increase in the price of food items. While this was the base effect, the rate has accelerated significantly since 2022, with an annual rate of 18.5% that year. With the announcement made by the President in his inaugural address in May , 2023 “ Subsidy is Gone” , followed by other policy implementation like the harmonization of the FX rate, removal of subsidy in the power sector, inflation has been on the upward spiral, surging to 34.19% in June 2024.

YEAR	INFLATION RATE
2018	12.10%
2019	11.40%
2020	13.25%
2021	16.95%
2022	18.85%
2023	28.92%
2024 (June)	34.19%

Inflation Rates in Nigeria (2018 – June 2024)

Businesses in Nigeria, especially SME’s have been grappling for breath with the attendant rising cost from power, cost of raw materials, staff overheads, and reduced patronage owing to the reduction in purchasing power of customers. The Central Bank of Nigeria (CBN) monetary policy committee has raised interest rate by 50 basis points from 26.25% to 26.75%. The Governor of the Central Bank of Nigeria, Mr Olayemi Cardoso announced this at the end of the apex bank’s 296^th MPC meeting held in Abuja. This textbook policy measure by the CBN has not yielded much fruit as inflation continues to rise.

The Director General of the Franco-Nigerian Chamber of Commerce and Industry and a member of the Board of French Tech Lagos, Mr Moses Umoru, in a recently organized technical training for MSME’s by the Chamber, stated that Nigerian’s inflation is triggered from the Cost side hence monetary policy measures by the CBN might not be able to create the desired effect. He stated that fiscal measures such as the elimination of multiple taxation experienced by businesses, reduction in import duties for manufacturing input , also the government should fix the long standing power issue in the country, he believes that these measures will reduce inflation and the cost of food items.

He also stated that from the Monetary side, there is a need to play around with the CRR ( Cash Reserve Ratio) and leverage the commercial banks to support real sector development. He stated that with CRR currently at 45%, the CBN can allocate between 4-10 percent for the MSME’s and Manufacturing sector with a single digit interest. This will reduce input cost and reduce the cost of the final products thereby reducing inflation.

Nigeria’s inflation requires a multifaceted approach to address the root causes of inflation, while also considering the implications of the minimum wage increment. It is crucial to address the issue head on, exploring monetary, fiscal, and supply side solutions to stabilize the economy and promote sustainable growth. Additionally, the government must ensure that the minimum wage increment is implemented in a way that it balances the benefits of higher wages with the potential risks of inflation.

The clock is ticking. Which leaves us with a question:

“Will Nigeria tame the inflation beast, or will it succumb to its devasting effects?”

The choice is clear, policy makers must identify the root causes and develop effective solutions to stabilize the economy and promote sustainable growth.

Economy