Rising Fuel Costs and Flooding Threaten to Drive Nigeria’s Inflation Even Higher, Analysts Warn
As Nigeria’s October inflation data release approaches, analysts are sounding the alarm that inflationary pressures are set to remain high. Driven by increased fuel prices, currency depreciation, and severe flooding that disrupted agricultural production, inflation is expected to persist at elevated levels. Researchers at Cowry Assets Management Limited forecast an October inflation rate of 33.10%, emphasizing that recent fuel price hikes and ongoing flooding have heavily impacted Nigeria’s economy.
In their latest report, Cowry Assets analysts highlighted that despite government measures, including the Central Bank of Nigeria’s (CBN) recent rate hikes and the zero-duty policy on certain food imports, structural issues such as supply chain disruptions and security concerns continue to hinder inflation control efforts. They cautioned that without targeted intervention in key areas, inflation could rise further, exacerbating Nigeria’s cost of living crisis.
Key Drivers of Inflation:
1. Fuel Price Surge: With petrol prices climbing from N980 to around N1,050 per liter in Lagos, and even higher in other states, transportation costs have surged. This price hike is a major contributor to rising consumer prices, as transport costs directly affect the cost of goods.
2. Currency Depreciation: The weakening naira has led to higher import costs, making both fuel and essential goods more expensive for consumers.
3. Flooding and Agricultural Disruption: Severe flooding across major agricultural regions has disrupted crop production, leading to rising food prices. The food inflation rate rose to 37.77% year-over-year in September, with analysts projecting further increases in October due to ongoing supply chain challenges.
4. Core Inflation Trends: While core inflation, which excludes food and energy, saw a slight dip in September, analysts expect it may rise again, driven by increasing energy costs and a depreciating currency.
The CBN has implemented aggressive monetary tightening, raising the Monetary Policy Rate by 50 basis points to 27.25% in September, along with other financial regulations. However, analysts argue that unless structural issues are addressed, these policies may only provide limited relief. They note that infrastructure deficiencies, high transportation costs, and logistical challenges remain significant barriers to effective inflation control.
The Nigerian inflation rate reached 33.2% in March 2024, driven by subsidy removal and a continued rise in fuel prices. After peaking at 34.19% in June, inflation slightly moderated but climbed again to 32.7% in September, with projections suggesting the headline index could exceed 35% by December if current trends continue.
With the Monetary Policy Committee set to meet again in two weeks, market watchers anticipate further policy adjustments aimed at curbing inflation. However, experts emphasize that addressing Nigeria’s structural challenges, such as securing agricultural regions and stabilizing fuel prices, will be crucial in achieving long-term price stability.
As Nigeria’s October inflation data release approaches, analysts are sounding the alarm that inflationary pressures are set to remain high. Driven by increased fuel prices, currency depreciation, and severe flooding that disrupted agricultural production, inflation is expected to persist at elevated levels. Researchers at Cowry Assets Management Limited forecast an October inflation rate of 33.10%, emphasizing that recent fuel price hikes and ongoing flooding have heavily impacted Nigeria’s economy.
In their latest report, Cowry Assets analysts highlighted that despite government measures, including the Central Bank of Nigeria’s (CBN) recent rate hikes and the zero-duty policy on certain food imports, structural issues such as supply chain disruptions and security concerns continue to hinder inflation control efforts. They cautioned that without targeted intervention in key areas, inflation could rise further, exacerbating Nigeria’s cost of living crisis.
Key Drivers of Inflation:
1. Fuel Price Surge: With petrol prices climbing from N980 to around N1,050 per liter in Lagos, and even higher in other states, transportation costs have surged. This price hike is a major contributor to rising consumer prices, as transport costs directly affect the cost of goods.
2. Currency Depreciation: The weakening naira has led to higher import costs, making both fuel and essential goods more expensive for consumers.
3. Flooding and Agricultural Disruption: Severe flooding across major agricultural regions has disrupted crop production, leading to rising food prices. The food inflation rate rose to 37.77% year-over-year in September, with analysts projecting further increases in October due to ongoing supply chain challenges.
4. Core Inflation Trends: While core inflation, which excludes food and energy, saw a slight dip in September, analysts expect it may rise again, driven by increasing energy costs and a depreciating currency.
The CBN has implemented aggressive monetary tightening, raising the Monetary Policy Rate by 50 basis points to 27.25% in September, along with other financial regulations. However, analysts argue that unless structural issues are addressed, these policies may only provide limited relief. They note that infrastructure deficiencies, high transportation costs, and logistical challenges remain significant barriers to effective inflation control.
The Nigerian inflation rate reached 33.2% in March 2024, driven by subsidy removal and a continued rise in fuel prices. After peaking at 34.19% in June, inflation slightly moderated but climbed again to 32.7% in September, with projections suggesting the headline index could exceed 35% by December if current trends continue.
With the Monetary Policy Committee set to meet again in two weeks, market watchers anticipate further policy adjustments aimed at curbing inflation. However, experts emphasize that addressing Nigeria’s structural challenges, such as securing agricultural regions and stabilizing fuel prices, will be crucial in achieving long-term price stability.