Of Inflation Decline and IMF Projections

With inflation easing for the second consecutive month, Nume Ekeghe writes on whether the earlier projections of the IMF on Nigeria’s inflation average are in sight.

 Nigeria’s inflation rate moderated in August 2024, with the Consumer Price Index (CPI) dropping to 32.15 per cent, down from 33.40 per cent in July, according to the National Bureau of Statistics (NBS). This 1.25 per cent decrease reflects a slowdown in the rate of price increases, driven by moderating food and commodity prices. Despite the short-term relief, inflation remains 6.35 per cent higher than in August 2023, raising concerns over the country’s economic stability and the path ahead for meeting the International Monetary Fund’s (IMF) inflation target for the year.

IMF’s Inflation Projections for 2024

In its recent Article IV consultation, the IMF forecasted that Nigeria’s inflation would gradually ease to 24 per cent by the end of 2024. This projection is based on continued monetary tightening by Nigeria’s central bank and the anticipated improvements in key economic sectors like agriculture and oil. According to the IMF, inflation had already reached 32 per cent year-on-year by February 2024, largely driven by surging food prices, which soared by 38 per cent, and loose financial conditions.

The IMF noted that Nigeria’s reforms such as the removal of fuel subsidies, unification of official foreign exchange rates, and focus on revenue mobilization are key to stabilizing the economy.

“Determined and well-sequenced implementation of the authorities’ policy intentions would pave the way for faster, more inclusive, resilient growth,” the IMF stated.

However, inflation remains a critical hurdle, particularly as high food and energy prices continue to impact households.

 Food Prices’ Persistent Challenge

While the overall inflation rate eased, food inflation remains a significant driver of the country’s economic difficulties. Food prices rose 37.52 per cent year-on-year in August 2024, continuing to put pressure on consumers. Staples like bread, maize, and yam have seen steep price increases, while other essentials such as vegetable oil and palm oil remain elevated.

On a month-on-month basis, food inflation slowed slightly, dropping to 2.37 per cent in August from 2.47 per cent in July. The NBS attributed this to a reduced rate of increase in the prices of items like yam, Irish potatoes, cassava, and palm oil. Despite this marginal drop, the high year-on-year figure highlights the scale of the inflationary challenge, especially for food security.

Urban and Rural Inflation Disparities

The inflation divide between Nigeria’s urban and rural areas continues to widen. Urban inflation stood at 34.58 per cent year-on-year in August, while rural inflation was recorded at 29.95 per cent. This disparity reflects the different economic dynamics between Nigeria’s cities and its more agrarian regions. Urban areas, which rely more heavily on imported goods and services, are particularly vulnerable to rising prices driven by currency fluctuations and higher transportation costs.

Variations in State-by-State Inflation

Inflation rates varied widely across Nigeria’s states in August. Bauchi recorded the highest year-on-year inflation at 46.46 per cent, followed by Kebbi at 37.51 per cent and Jigawa at 37.43 per cent. On the other end of the spectrum, Benue (25.13 per cent), Delta (26.86 per cent), and Imo (28.05 per cent) saw the slowest inflation increases. These variations highlight the uneven economic impact of inflation across different regions, with northern states often more affected by security challenges and disruptions in agricultural production.

Achieving 24% Inflation by Year-End

Despite the positive steps Nigeria has taken, including monetary tightening and key reforms, the path to achieving the IMF’s projected 24 per cent inflation by the end of 2024 remains uncertain. Energy costs, particularly following the removal of fuel subsidies, continue to feed into transportation and production costs, keeping inflationary pressures high. Additionally, the naira’s depreciation has raised the cost of imported goods, further contributing to inflation.

The IMF’s inflation projection hinges on the effective implementation of these reforms, along with improvements in agriculture and oil production, sectors that are crucial for Nigeria’s overall economic recovery. With GDP growth projected to reach 3.3 per cent in 2024, largely due to better security and sectoral improvements, there is optimism that inflation could be brought under control if these policies are implemented with precision.

economic stabilisation

Nigeria’s inflation rate saw a modest improvement in August, easing to 32.15 per cent, but it remains far from the IMF’s year-end projection of 24 per cent. The government’s reforms have created a foundation for economic stabilisation, but persistent inflation, particularly in food and energy, continues to weigh on household incomes and business costs. Achieving the IMF’s target will require sustained efforts to manage inflation drivers, such as food prices, and to stabilize the naira. While the 1.25 per cent drop in inflation from July offers hope, Nigeria’s economic policymakers still have a long road ahead to bring inflation under control.