Nigeria's inflation sustains uptrend in May

Nigeria's headline inflation continued its upward trajectory in May, rising by 19 basis points to 22.4 per cent, with food inflation also increasing by 21 basis points to 24.8 per cent. This data highlights the ongoing challenges faced by the Nigerian economy. Muda Yusuf, Director at the Centre for the Promotion of Private Enterprise, shared his views on the latest inflation numbers and the recent development in the foreign exchange market. Yusuf emphasized that while the slight increase in inflation is not significant, the key drivers remain consistent, including energy costs, foreign exchange rates pass-through, and transportation costs. One of the key topics of discussion was the recent liberalization of the foreign exchange market in Nigeria. Yusuf described this policy shift as a welcome development that has long been advocated for. He expressed optimism that the liberalization would positively impact liquidity in the foreign exchange market, boost the supply of foreign exchange, and lead to a reduction in speculative demand. By unifying multiple exchange rates and allowing the Naira to float more freely, the policy aims to create a more transparent and accessible foreign exchange market. Yusuf highlighted the potential benefits for businesses, particularly in terms of access to foreign exchange at lower rates. He noted that many businesses had been operating at parallel market exchange rates around 720 to 750 Naira to the dollar, significantly higher than the current rate of about 660 Naira in the new market. This shift could lower operating costs for businesses and improve overall access to foreign exchange. When discussing the impact on manufacturing and SMEs, Yusuf pointed out that the new exchange rate regime could be advantageous for businesses that had been struggling with high exchange rates. The increased access to a lower exchange rate through the new market could contribute to lower costs and improved competitiveness for many businesses. Looking ahead, Yusuf emphasized the importance of government monitoring of the foreign exchange market and intervention when necessary to prevent excessive volatility. He underscored the need for a balanced approach that combines market principles with targeted government intervention to maintain stability. Overall, the interview with Muda Yusuf provided valuable insights into the recent trends in inflation and the potential impact of the foreign exchange market liberalization on businesses in Nigeria. As the country continues to navigate economic challenges, the role of policies like these will be crucial in shaping the business landscape and driving sustainable growth.