Nigeria, Africa’s largest economy and most populous nation, is facing a severe cost of living crisis as inflation reached a record high of 28.92% in December 2023, the highest level since mid-1996.
The National Bureau of Statistics (NBS) reported on Monday that consumer inflation rose for the 12th consecutive month in December, up from 28.20% in November.
The main driver of inflation was food prices, which soared by 33.93% in December, compared to 32.84% in the previous month. The NBS said that a wide range of food items, such as bread, cereals, oil, fish, meat, fruit and eggs, became more expensive.
Why Are Prices Rising?
Analysts say that several factors are behind the surge in prices, including higher fuel costs, a weaker naira currency, and supply disruptions caused by insecurity and climate change.
President Bola Tinubu, who took office in May 2023, embarked on a bold reform agenda to revive economic growth, which had been sluggish since the 2016 recession. He scrapped a costly but popular fuel subsidy and devalued the naira to align it with market forces.
However, these reforms have also increased inflationary pressures, as fuel prices rose by more than 50% and the naira lost about 30% of its value against the US dollar in 2023.
Moreover, Nigeria faces a persistent security challenge from armed groups, such as Boko Haram, bandits and separatists, who have disrupted farming activities and transport networks in many parts of the country. This has reduced food production and increased transportation costs.
In addition, Nigeria has been hit by the effects of climate change, such as droughts, floods and desertification, which have damaged crops and livestock. The country is also dependent on food imports, which have become more expensive due to the weak naira and global inflation.
What Are The Implications?
The rising inflation has eroded the purchasing power of millions of Nigerians, who already struggle with poverty and unemployment. According to the World Bank, about 40% of Nigerians live below the national poverty line of 137,430 naira ($338) per year.
The high inflation has also put pressure on the Central Bank of Nigeria (CBN) to raise interest rates to curb price growth and stabilize the naira. However, the CBN has kept its benchmark interest rate at 18.75% since September 2023, when Olayemi Cardoso became the governor.
The CBN has argued that raising rates would hurt economic recovery and investment, and that inflation is mainly driven by supply-side factors that are beyond its control. The CBN has also intervened in the foreign exchange market to support the naira and ease liquidity.
However, some analysts say that the CBN needs to act more decisively to tame inflation and restore confidence in the economy. David Ojomolo, Africa economist at Capital Economics, said that the CBN should raise rates by 400 basis points, to 22.75%, at its next meeting.
“There’s a clear risk, though, the CBN underwhelms again. Doing so would undermine much of the momentum and optimism around the policy shift that President Tinubu started last year,” Ojomolo said in a research note.
Despite the inflation challenge, Nigeria still has some positive prospects for its economy. The International Monetary Fund (IMF) projects that Nigeria’s gross domestic product (GDP) will grow by 4.2% in 2024, up from 2.6% in 2023, driven by higher oil prices, improved security and increased vaccination.
Nigeria also has the potential to diversify its economy and reduce its dependence on oil, which accounts for about 90% of its export earnings and 60% of its government revenue. The country has a large and youthful population, a vibrant private sector, and abundant natural resources.
President Tinubu has pledged to continue his reform agenda and implement policies that will boost productivity, competitiveness and inclusiveness. He has also vowed to tackle corruption, improve governance and strengthen institutions.
Nigeria’s inflation may be high, but it is not insurmountable. With the right policies, leadership and cooperation, Nigeria can overcome its cost of living crisis and achieve its economic potential.
Source: Reuters
