Archives November 2024

Imagine you are in a car, driving down a long, winding road with no clear destination. The road ahead is riddled with bumps, sharp turns, and potholes, making every mile a test of endurance. For Nigerians, this journey mirrors their unending battle with inflation—the ever rising costs of things that make life an uphill struggle.

The Central Bank of Nigeria (CBN) has been behind the wheel, attempting to steer us safely through this uncertain terrain. This week, they pressed the accelerator again,�raising�the benchmark interest rate to 27.5% to regain control over rising inflation.

Why did CBN increase the rate again?

CBN Governor Yemi Cardoso announced that the Monetary Policy Committee (MPC) unanimously agreed to�hike�interest rates. The decision comes as inflation continues its relentless climb—not just year-on-year, but month-on-month as well. In October, inflation soared to 33.9%, a level not seen since 1996.

This price surge is mainly due to rising costs of food and fuel, coupled with a depreciating naira, which together are straining household budgets and squeezing business operations for many Nigerians.

At the same time, the naira has struggled this year, losing�46%�of its value against the dollar. This depreciation comes from efforts to let the currency float freely and address the ongoing dollar shortage. As a result, the cost of imports has soared, adding to Nigeria’s inflation problems.

But they have been increasing rates. Why is inflation still going up?

Despite the CBN’s repeated interest rate hikes, inflation in Nigeria continues to rise, and the naira remains under pressure. This raises a pressing question:�why isn’t it working?

Raising interest rates is a classic tool for controlling inflation, but it’s only one piece of a larger puzzle. By making borrowing costlier, the CBN aims to reduce spending and cool demand. However, Nigeria’s inflation is deeply rooted in structural problems that extend far beyond consumer behavior—problems that interest rate hikes alone can’t fix.

The core problem is�supply-side inflation, which is driving up the cost of living, particularly in essential areas like food and fuel. Much of Nigeria’s inflation is tied to rising food prices, which continue to climb sharply. Food inflation is particularly severe in urban areas, where supply chains are under more strain due to higher transportation costs and challenges in food preservation. As food gets more expensive in cities, the burden on consumers grows heavier.

To truly tackle inflation, the CBN’s monetary policy must work hand-in-hand with solutions targeting these underlying challenges. Key issues like the high cost of production—caused by a weakened naira, soaring fuel prices, and poor infrastructure—are making it more expensive for businesses to produce and transport goods. These structural problems cannot be solved by interest rate hikes alone, underscoring the need for broader, more comprehensive reforms.

What does this mean for you?

For most Nigerians, this means that the cost of living will remain high for the foreseeable future. With interest rates increasing, borrowing costs will increase, making loans and credit more expensive. While higher interest rates can lead to better returns on savings, inflation is still outpacing the benefits. This means the naira in your pocket is losing its purchasing power daily, especially for food and fuel.

According to the Central Bank of Nigeria’s (CBN) international payment�data, remittances in the first nine months of 2024, amounted to $1.54 billion, a 16.7% decline from $1.85 billion recorded in the same period in 2023. Remittances refer to amounts sent by individuals working abroad to support their families and loved ones in their home country.

The decline in remittances may be attributed to several factors, including a weak global economy, and a weak domestic currency. Over the last decade, remittance inflows played an important role in the Nigerian economy. Remittances help households with members in a foreign country to meet basic expenses such as education and healthcare. It is also an important source of foreign currencies and contributes to the country’s foreign exchange reserves.

Beyond substistence purposes, remittances are also channels into productive investments, in turn, bolstering economic growth. While the government might have limited influence on the global economy, government policies aimed at improving the domestic business environments could help reverse the declining trend of remittances.

According to the National Bureau of Statistics (NBS) Consumer Price Index (CPI) and Inflation�Report for October, headline inflation increased to 33.88%, from 32.70% in September, and 27.33% a year ago. The headline inflation surged due to rising food prices for commodities such as guinea corn, rice, and maize grains.Food inflation increased to 39.16% from 37.77% in September and 31.52% in October 2023.  �At the state level, Bauchi recorded the highest inflation rate at 46.68%, while Katsina had the lowest at 29.59%. Sokoto had the highest food inflation at 52.18%, while Rivers had the lowest at 33.87%.

The continuous rise in inflation could further worsen already weakened purchasing power. Unchecked high inflation might result in social unrest, as more Nigerians are unable to afford essential items they could buy a year ago. Hence, the government must tackle inflation head-on.

Food inflation can be reduced by addressing security concerns, increasing agricultural productivity and reducing post-harvest losses arising from poor storage infrastructure and weak transport networks.

According to the Central Bank of Nigeria’s October 2024 Business Confidence Survey, average capacity utilization fell by 4.3 percentage points to 51% down from 55.3% in the previous month.  Each sector of the economy exhibited varying levels capacity utilization. Mining and quarrying, electricity, gas, and water supplies had the highest levels of utilization in October at 57%, followed by manufacturing at 52%. Compared to the average installed capacity of 51%, the agriculture sector reported the lowest level of utilization at 48%, suggesting there is room to increase the sector output.

The low level of utilization is partly due to high interest rates, insecurity, complex tax structures, and inflation. These factors have all contributed to a less advantageous business environment, resulting in lower capacity utilization. Declined capacity utilisation signals a negative consequence on the economy which could result in output levels below potential and low export volumes. Low capacity utilization posits a challenge to the aspiration of the government to achieve a $1 trillion economy by 2030. Hence, the government needs to address the insecurity issue, prioritize infrastructure development and maintenance, lower the interest rate, and improve the efficiency of energy sources and alternatives.

This would mean that borrowing becomes costlier; the CBN also aims to use monetary policy rates to control inflation.

The Central Bank of Nigeria has increased monetary policy rate to 27.50% from the earlier 27.25% in which it was pegged.  This would mean that borrowing becomes costlier; the CBN also aims to use monetary policy rates to control inflation.  It is also aimed at ensuring that the naira becomes stronger.

According to a post on the official X account of the CBN, the bank voted to increase monetary policy rate by 250 points.  “The Monetary Policy Committee (MPC) Voted unanimously to raise Monetary Policy Rate (MPR) by 250 basis point from 27.25% to 27.50%” the statement read.

The CBN also voted to “retain Cash Reserve Ratio (CRR) at 50% for Deposit Money Banks and 16% for Merchant Banks.”  “The Committee also retains the Liquidity Ratio (LR) at 30% and Asymmetric Corridor at +500/-100 basis points around the MPR.” the apex bank posted.

The increase in monetary policy rates have failed to reduce the inflation in the country with general inflation and food inflation experiencing increase.  It is unclear if the CBN monetary policy rate does not affect government borrowings as state governments have continued to borrow increasingly from domestic sources.  The CBN have continued to insist that increasing monetary policy rates were vital to economic stability and recovery in the country.

According to the International Monetary Fund (IMF) in its October 2024 World Economic�Outlook, Nigeria’s inflation remains in double digits and exceeds targets in nearly half of the region. Although regional GDP-weighted headline inflation is expected to decline from 18.1% in 2024 to 12.3% in 2025 and will remain higher in oil-exporting countries like Nigeria. Projected fiscal consolidation is expected to improve the external sector, with the median current account deficit decreasing from 4.3% in 2024 to 3.7% in 2025.

However, oil exporters like Nigeria might see their current account surpluses narrow from 1.5% to approximately zero percent. Recent macroeconomic adjustments, such as reductions in fuel subsidies and increased exchange rate flexibility, have intensified short-term hardships.  �The IMF projects that Nigeria’s real GDP growth will increase from 2.92% in 2024 to 3.3% in 2025, while consumer price inflation is expected to decline from 32.5% to 25.0%. External debt is projected to increase from 22.7% of GDP in 2024 to 25.0% in 2025, and reserves are expected to increase to 7.2% of imports, up from 6.8%.

The government needs to put policies in place to curb inflation to ensure the decline projected is attained. Additionally, domestic resource mobilisation should be a priority to reduce the need for borrowing and increase fiscal expenditure.

According to�data from the Central Bank of Nigeria (CBN) on money and credit,money in circulation increased by 56.13% year-on-year, reaching N4.31 trillion in September 2024, up from N2.76 trillion in September 2023. This surge reflects a 4.04% rise in cash circulating in the economy, rising from N4.14 trillion in August 2024. This trend highlights Nigeria’s heavy reliance on cash transactions,with cash held outside banks growing faster than money issued for circulation. Also, Nigeria’s money supply (M3) increased substantially to N66.95 trillion in September 2024, up 62.8% from N41.94 trillion in the previous year and showing a 1.6% rise from N65.19 trillion in August 2024.

However, the increase in currency circulation and overall money supply suggests pressures that may exceed Nigeria’s productive capacity, contributing to Increase in inflation. Approximately 93.1% of Nigeria’s currency in circulation was being held outside banks in September 2024, compared to 87.5% the previous year. The shift may be attributed to factors such as low trust in banking services, inflationary pressures, and the cash-dependent nature of Nigeria’s informal economy.

The rising currency circulation and expanding money supply present complex challenges for the economy, highlighting the need for targeted policy interventions. The Cashless Policy by the CBN aims to reduce reliance on cash transactions, potentially easing inflation by controlling currency circulation and money supply. Therefore, addressing challenges like network glitches and insufficient ATMs to ensure that effective electronic payment systems are available to implement this policy for conciseness and clarity.

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The Federal Executive Council (FEC), yesterday approved a N47.9 trillion federal budget estimate for the 2025 fiscal year during its meeting at State House, Abuja. Briefing newsmen after the FEC meeting held at the Council Chambers and presided by President Bola Tinubu.

Minister of Budget and Economic Planning, Atiku Bagudu, explained that the budget approval was part of the Medium Term Expenditure Framework (MTEF) for 2025-2027, in accordance with the Fiscal Responsibility Act 2007. Bagudu said the executive will put necessary efforts in place to ensure that the 2025 budget estimate was passed by the National Assembly and signed into law by the president before the end of December. Bagudu explained that FEC pegged the price of crude oil at $75 per barrel, exchange rate at N1,400 to the dollar, and oil production at 2.06 million barrels per day. He added that with the growth rate of 3.19 per cent, which came in the second quarter of 2024, the federal government will continue to tackle inflation, strengthen economic resilience, and provide more support for the economy in 2024.

Consumer prices in Nigeria increased by 118bps to 33.88% y/y in October (September: 32.70% y/y). The outturn is 39bps and 48bps higher than Cordros’ (33.49% y/y) and Bloomberg’s median consensus (32.40% y/y) estimates, respectively. On a month-on-month basis, headline inflation increased by 12bps to 2.64% (September: 2.52% m/m).

Food inflation rose significantly by 139bps to 39.16% y/y in October (September: 37.77% y/y). The higher Food inflation on a year-on-year basis was driven by increases in prices of the following items: Guinea Corn, Rice, Maize Grains, Yam, Water Yam, Coco Yam, Palm Oil, Vegetable Oil, Milo, Lipton, and Bourvita. On a month-on-month basis, food prices surged by 30bps to 2.94% (September: 2.64% m/m).

Similarly, core inflation (All items less farm produce and energy) increased by 94bps to 28.37% y/y (September: 27.43% y/y). The highest increases were recorded in prices of the following items: Bus Journey within the city, Journey by motorcycle, Bus journey intercity, Rents (Actual and Imputed Rentals for Housing Class), Meal at a local Restaurant (Accommodation Service Class), hair cut service, woman hairbrush, and women’s hairdressing (Hairdressing salons & personal grooming establishments Class). The core index settled at 2.14% m/m in October 2024 compared to the 2.10% m/m in the previous month