Nigeria’s headline inflation up 15.6% y/y in December
Nigeria’s headline inflation has reversed the 8-month decline and has increased to 15.6 per cent in December, with food inflation slowing further. Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise, joins CNBC Africa for more.
Mon, 17 Jan 2022 12:22:05 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Rise in headline inflation to 15.6% in December poses challenges for businesses, purchasing power, and poverty levels
- Key drivers of inflation include cost push factors, forex issues, and productivity challenges in agriculture and manufacturing sectors
- Concerns about election-related spending, structural problems, and struggling economy impact Nigeria's inflation outlook
Nigeria's headline inflation rate has taken a surprising uptick to 15.6% in December, reversing an eight-month decline trend. This rise in inflation poses significant challenges for the Nigerian economy, affecting businesses' cost of production, purchasing power, and ultimately impacting poverty levels. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, highlighted the key drivers behind this inflation surge, including cost push factors such as transportation, port congestion, energy costs, and forex issues due to imported goods. The interview also shed light on the impact of insecurity on food production, leading to a productivity challenge in both agriculture and manufacturing sectors.
Food inflation, a critical component of the overall inflation rate, saw a slight decrease of 2% to 17.3%, but still remains a concern for the economy. Structural problems, low productivity levels, and output constraints further contribute to the inflationary pressures. The monetary aspect of inflation, specifically the financing deficits, presents a looming threat as the country faced a sizeable exposure of about 10 trillion Naira.
Yusuf expressed concerns about the upcoming election year and the potential surge in spending, which could further fuel inflationary pressures. Despite the possibility of a rate hike by the Monetary Policy Committee (MPC) in response to external factors such as expected rate hikes by the US Federal Reserve, Yusuf emphasized the need for a cautious approach. He highlighted the struggling state of the Nigerian economy, which is yet to fully recover to pre-COVID levels.
In terms of manufacturing, the FX issues, particularly deposit rates and liquidity, pose significant challenges for local manufacturers. While there have been assurances from the government regarding foreign exchange allocation, the fundamental structural issues persist. The stability of the Naira and potential further depreciation could have adverse effects on the manufacturing sector.
Looking ahead, the outlook for inflation in Nigeria remains elevated, with the election spending, structural challenges, and ongoing forex issues likely to keep the inflation rate on an upward trend. The pressure on the monetary authorities to hike interest rates exists, but given the fragile state of the economy, a cautious approach is recommended to support the recovery process. The manufacturing sector, a vital component of the economy, continues to grapple with FX challenges and structural issues, highlighting the need for comprehensive reforms to address the root causes of inflation and promote sustainable growth.