Nigeria’s inflation rate reached the highest level in over 27 years in December, primarily driven by soaring food prices, intensifying the cost-of-living crisis and prompting increased expectations for the Central Bank of Nigeria (CBN) to raise interest rates.
The National Bureau of Statistics (NBS) reported on Monday that consumer inflation marked its 12th consecutive monthly rise in December, reaching 28.92% year on year, up from November’s 28.20%. This marks the highest inflation rate in Africa’s largest economy and most populous nation since mid-1996.
The food inflation rate, a significant component of Nigeria’s inflation basket, surged to 33.93% in December, up from 32.84% the previous month. The statistics office noted increases in prices for various food items, including bread and cereals, oil, fish, meat, fruit, and eggs.
Analysts attribute the rising inflation to higher fuel prices and the depreciation of the naira currency.
David Omojomolo, Africa economist at Capital Economics, stressed that “inflationary pressures are only likely to build from here,” citing second-round effects from the removal of a fuel subsidy last year and naira weakness.
He predicted inflation exceeding 30% by the end of the first quarter, expecting it to peak around the middle of 2024.
President Bola Tinubu’s bold economic reforms last May, which included scrapping a costly fuel subsidy and devaluing the currency, aimed to stimulate economic growth. However, economic growth has been slow to recover, while inflation continues to worsen.
Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), who assumed office in September, is yet to convene a rate-setting meeting.
Capital Economics’ Omojomolo suggested that at the next meeting, the CBN might need to raise rates by 400 basis points to 22.75% to demonstrate a more serious stance against inflation.
However, there is concern that if the CBN falls short, it could undermine the momentum and optimism around the economic policy shift initiated by President Tinubu last year.