By John Ikani
Projections suggest that inflation is poised to level off in the first quarter of the coming year, followed by a subsequent decline, owing to the Central Bank of Nigeria (CBN) persistently implementing interest rate hikes and adopting strategies to bolster the naira.
Insights from the CBN leadership, private sector experts, and industry stakeholders shed light on the anticipated trajectory of inflation in the upcoming year and the influencing factors.
In a communication to investors via email, Bismarck Rewane, Managing Director of Financial Derivatives Company Limited, expressed expectations that inflation would experience a continued uptick in the ongoing month.
Still, he foresees a flattening out in January 2024, followed by a deceleration. Rewane emphasized, “We expect inflation to rise further in December supported by festive demand. However, it could flatten out in January 2024 and begin to decline afterwards as the CBN maintains its hawkish monetary stance.”
Despite this, the CBN is on track to take a potentially divergent path in its January 2024 meeting, primarily guided by its renewed commitment to ensuring price stability.
The sustained interest rate hikes are not only anticipated to alleviate inflationary pressures but also mitigate capital flights, potentially leading to an appreciation in the value of the naira.
Olayemi Cardoso, CBN Governor, outlined the apex bank’s commitment to adopting an inflation-targeting framework, aiming to align fiscal and monetary policies for achieving price and exchange rate stability.
He conveyed that the CBN intends to discontinue direct quasi-fiscal intervention, instead opting for orthodox monetary policy tools to refocus on the core mandate of ensuring price stability.
However, it is crucial to note that factors contributing to Nigeria’s heightened inflation, including structural issues, supply chain disruptions, and external elements, extend beyond the control of domestic monetary policy.
Cardoso emphasized the necessity of a balanced blend of fiscal and monetary policies to effectively address inflation.
Former CBN Deputy Governor, Operations, Tunde Lemo, attributed inflation to the escalating CBN’s Ways and Means, estimated at N24 trillion. Lemo highlighted the substantial growth of Ways and Means, from N239 billion in 2013 to N24 trillion last year, contributing to pushing inflation to an 18-year high of 27.3 percent in October this year.
Furthermore, Lemo linked high inflation to structural factors such as infrastructural deficit, high logistic costs, and exchange rate depreciation.
Last week, the National Bureau of Statistics (NBS) released November’s inflation data, indicating that Nigeria’s headline inflation rate reached a record high of 28.20 percent, up from 27.33 percent in October.
This signifies a consecutive monthly increase in headline inflation throughout the year.
The surge is driven by factors such as money supply saturation, exchange rate depreciation, and elevated logistics costs impacting food prices.
Food inflation, specifically, witnessed a 1.32 per cent rise to 32.84 per cent, with notable increases in prices of bread, cereals, yam, meat, vegetables, and eggs. Meanwhile, core inflation, excluding volatile items, showed a slight decline, hinting at a possible tapering of the inflation momentum.
Globally, commodity prices have moderated, contributing to a reduction in inflationary pressures in advanced economies. In the African region, inflation trends varied, with Ghana and South Africa experiencing easing, while Zambia and Angola faced upward pressures due to currency challenges.
The global context, with a decline in food and energy costs, has led to a deceleration of inflation in advanced economies. Notably, the U.S. witnessed a drop from a peak of 9.1 per cent in June last year to 3.1 per cent in November 2023.
In alignment with the global scenario, the Bank of Ghana and South Africa’s central bank maintained their interest rates, reflecting the varying inflation dynamics in their respective regions.