Nigeria witnessed a surge in its inflation rate to the highest level in over 27 years during December, driven by a sharp increase in food prices. This development has intensified the ongoing cost-of-living crisis, placing additional pressure on the central bank to contemplate interest rate hikes.
According to the National Bureau of Statistics, consumer inflation climbed for the 12th consecutive month in December, reaching 28.92% year on year, compared to November’s 28.20%. This marks the highest inflation rate in Africa’s largest economy and most populous nation since mid-1996.
In particular, the food inflation rate, a significant component of Nigeria’s inflation basket, rose to 33.93% in December, up from 32.84% the previous month.
The statistics office highlighted widespread increases in prices for various food items, including bread, cereals, oil, fish, meat, fruit, and eggs.
Analysts attribute the rising inflation to factors such as increased fuel prices and the depreciation of the naira currency. David Omojomolo, an Africa economist at Capital Economics, anticipates that inflationary pressures will continue to mount, citing second-round effects from the removal of a fuel subsidy last year and the weakening of the naira.
He forecasts that inflation will surpass 30% by the end of the first quarter and is unlikely to peak until the middle of 2024.
Despite President Bola Tinubu’s bold economic reforms in May, which included eliminating a costly fuel subsidy and devaluing the currency to stimulate economic growth, the anticipated positive outcomes have not materialized.
The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, who assumed office in September, has not yet convened a rate-setting meeting.
Omojomolo suggests that at the upcoming meeting, the CBN may need to raise rates by 400 basis points, reaching 22.75%, to demonstrate a more concerted effort in tackling inflation. However, he warns of the risk that the CBN might underwhelm, potentially undermining the momentum and optimism surrounding the economic policy shift initiated by President Tinubu last year.
