Current economic challenges and the rising Inflation in Nigeria has raised doubts on whether the country can still attain the 21.4 percent inflation rate target in the second half of 2024 earlier outlined by the Central Bank of Nigeria (CBN). Meanwhile, the Nigerian Economic Summit Group (NESG) predicts a slightly elevated rate of 21.5 percent. A report by the National Bureau of Statistics (NBS) showed that inflation spiked to 33.95 percent in May 2024, an increase from 33.69 percent in April. The Inflationary Pressures were exacerbated by disruptions in the supply chain caused by a combination of local challenges and global events, resulting in scarcities and heightened prices across several sectors.
Persisting rise in the rate is a clear indication of the ongoing economic difficulties the country is dealing with. Factors such as soaring rates of food and core inflation, reaching 40.66 percent and 27.04 percent, as reported by Trading Economics, play a major role in this trend. Food inflation is worsened by inefficiencies in local production and increasing global commodity prices, putting pressure on families’ finances. Core inflation, driven by housing, utilities, and transportation expenses, is also a significant issue that needs to be addressed. Widespread Insecurity in Nigeria continues to be a major obstacle to achieving food security, leading to a significant decline in local agricultural output.
Recent bold actions by CBN appear to be yielding results.
Efforts by the Central Bank of Nigeria to support the Naira in the foreign exchange market have been ongoing, but keeping the currency stable is a challenging task. A substantial decline in the naira could result in increased expenses for imported products and further worsening inflation. Thankfully, the Economy is being supported by the proactive actions of the CBN. In a span of three months, the CBN has increased the Monetary Policy Rate (MPR) by a significant 750 basis points, jumping from 18.75 percent to 26.25 percent in an effort to bring stability to the economy.
The recent bold actions appear to be yielding results, as shown by the consistent decrease in monthly inflation rates starting from the beginning of the year until May. The rate fluctuated with a minimal decrease of 1.8 percent in February, 1.5 percent in March, 0.49 percent in April and a further decline of 0.26 percent in May. Although some progress was witnessed following the implementation of these measures, the challenges of food and core inflation still persist without experiencing a comparable decrease. This indicates that reliance solely on Monetary Policy may not be enough, highlighting its importance but also its limitations.
CBN initiatives need to be effectively executed.
Long-term stability hinges on resolving structural challenges like inefficient food production and disruptions in the supply chain operations. Although the CBN’s initiatives are praiseworthy, effective execution is crucial. It is crucial for government agencies to coordinate their efforts to ensure policies are impactful. This demands robust leadership and efficient implementation strategies. There have been both successes and failures in the government’s efforts in this area, largely due to bureaucratic red tape and corruption. According to Gbenga Alawode, a respected economist, reaching the goal of 21.4 percent is possible with policies that reflect the current situation.
Gbenga recommends collaboration between government, private enterprises, and global allies in combating inflation at its source. He stressed the significance of analyzing data and consistently evaluating inflation patterns to make informed decisions. According to him, policymakers should prioritize adaptability and quick responses, basing adjustments on concrete evidence and focusing on sectors heavily affected by inflation. One way to reduce food inflation is by putting more emphasis on food production and stabilizing the currency to lessen import-driven inflation. He mentions that addressing Infrastructure deficiencies, increasing agricultural productivity, and enhancing Security are key measures to take.
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Based on outlooks, it’s quite challenging to decrease the rate by 12.55 percent, from 33.95 percent to 21.4 percent, in a mere six months. Although achievable in theory, practical circumstances indicate otherwise. Policymakers need to focus on implementing long-term and well-thought-out measures to successfully overcome the economic obstacles. Continuous monitoring of the economic landscape by the CBN and other government entities is crucial for making informed policy adjustments. Increasing government agency efficiency, promoting openness, and combating Corruption can proactively address the situation through timely interventions.