Analysts see September inflation rising ahead official data

Just when Nigerians thought they had some respite, rising inflation—one of Central Bank of Nigeria Governor Yemi Cardoso’s biggest challenges—is about to resurface, despite his relentless efforts to contain it.

Analysts see higher petrol prices pushing the inflation rate for the month of September to 32.3 percent ahead of the National Bureau of Statistics (NBS)’s report.

In his first year in office, Cardoso and his monetary committee have raised Nigeria’s benchmark interest rate five times, by a total of 850 basis points, in a bid to combat galloping inflation—a battle that predates his tenure.

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These efforts have yielded some results. Interest rate increases, now totaling a substantial 27.25 percent, have begun to reverse Nigeria’s inflation spiral, which was initially triggered by reckless government spending (through ways and means).

For the first time in 19 months, Nigeria’s annual headline inflation dipped in July to 33.4 percent, followed by a further decrease to 32.5 percent in August. This created the closest gap between the interest rate and inflation seen this year.

This improvement led many analysts to project a ‘hold’ on further tightening before the last Monetary Policy Committee (MPC) meeting. However, in a surprise move, the MPC opted for another 50 basis-point hike.

According to the CBN, the decision to raise interest rates was based on recent economic developments, including inflationary pressures and foreign exchange market instability.

Cardoso cited the threats of food inflation, widespread flooding, and rising petrol and energy prices as reasons for further monetary tightening.

These concerns prompted analysts to adjust their inflation forecasts for September.

Analysts at CardinalStone said in a report that the positive impact of the base effect would not be effective in September due to the upward revision of PMS (petrol) prices from N597.00 to N855.00 at the time of the report.

“Given that PMS prices in other states are higher than in Lagos, we expect a far-reaching impact of the adjustment on headline inflation. Against this backdrop, we expect core inflation, which will be the most affected, to maintain its upward trajectory, reaching 27.8 percent in September (vs. 27.6 percent in August),” the report stated.

On the food basket, the report forecast a deceleration in inflation in September, supported by the harvest season.

“Having adjusted our model for reported cases of flooding and lower-than-average harvests in some states, we expect food inflation to decelerate. Also, the passthrough of higher PMS prices is unlikely to be pronounced on food inflation, as most agro-machinery and logistics trucks are diesel-powered.”

“Overall, we expect headline inflation to increase by 15 basis points to 32.3 percent in September 2024,” the report concluded.

Similarly, analysts at the Financial Derivatives Company Limited, an economic think tank, have projected that headline inflation will increase marginally by 0.22 percent to 32.37 percent, driven by the new petrol prices, exchange rate volatility, and flooding in northern Nigeria, which would negatively impact agricultural production.

“In the same vein, we anticipate a moderate increase in month-on-month inflation by 0.16 percent, rising to 2.38 percent from 2.22 percent,” the report stated.

Last week, NNPC increased petrol prices again, from N950 to N998 per litre in Lagos, and as high as N1,030 in the northeastern states—the second increment in two months.

Nigerians, already struggling with limited disposable income, are facing fresh pressure as transportation and commodity prices soar in response to the petrol price hikes. Businesses are also bearing the brunt of rising energy costs, with the increased cost of loans leading them to pass expenses down to consumers.

One of the reasons why inflation in Nigeria has remained persistently high is the imbalance between monetary discipline and fiscal measures.

At the last MPC meeting, Cardoso emphasised, “Oil production has got to be ramped up to the level that will carry the economy. I think we are all ongoing witnesses to the efforts that are being made in that sector. It has to happen.”

Read also: Higher interest rates necessary to curb inflation, says Cardoso

He added, “We need to diversify our economy. There is only so much that a central bank can do. Without the fundamentals in the right position, we will continue to sub-optimise.”

The CBN’s tightening measures, which were also intended to attract foreign inflows and stabilise the naira, have succeeded in bringing in $3.48 billion in foreign portfolio investments during the first half of the year.

However, data show that government activities following the disbursement of funds from the Federation Account Allocation Committee (FAAC) have contributed to the depreciation of the naira.

Under President Bola Tinubu’s administration, the naira has lost about 70 percent of its value, averaging N1,511.34/$ at the Investors and Exporters window this year.

In its October LBS report, Financial Derivatives Company advised that the CBN should keep interest rates elevated until 2025 as a short-term measure to stabilise the naira.