Will Nigeria's inflation slow in June?

Nigeria has been grappling with persistent inflationary pressures, with headline inflation maintaining an upward trajectory for the 28th consecutive month, reaching 33.95 per cent in May 2024. However, there seems to be a glimmer of hope as inflation declined for the third consecutive month on a month-on-month basis, indicating a potential peak in inflation. Analysts are now looking towards June for signs of a possible moderation. Johnson Chukwu, the CEO of Cowry Asset Management, shared his insights on the current inflation figures and the potential outlook for Nigeria's economy. Chukwu highlighted that the primary driver of inflation continues to be food inflation, which stood at a staggering 40.6 per cent. Factors such as exchange rate fluctuations, insecurity affecting food production, and rising energy costs have contributed to the inflationary pressures. The limited growth in the agricultural sector further exacerbates the food scarcity issue, indicating a persistent problem in food production. Looking ahead, Chukwu suggested that a potential slowdown in inflation could be seen in the second half of the year. He pointed out that the base effect, where the steep year-on-year price increases would taper off, might lead to a moderation in inflation rates. While actual price reductions may not occur, the comparison to the previous year's high prices could create the perception of a moderation in inflation. In terms of recent developments in the Nigerian economy, Chukwu discussed two significant stories. The first was the announcement of a $3.5 billion boost from Afrixin Bank and the federal government to support the textile industry and promote CNG vehicles. While this injection of funds could provide some temporary relief, Chukwu emphasized the importance of consistent foreign exchange earnings to stabilize the economy. The second development involved Dangote's export of low-sulfur fuel to Asia, which could contribute to improving Nigeria's foreign exchange reserves. When addressing the monetary policy response to inflation, Chukwu expressed a cautious view. Despite the Central Bank of Nigeria's (CBN) significant interest rate hikes totaling 750 basis points, inflation has remained stubbornly high. Chukwu argued that the tightening measures have not effectively addressed the root causes of inflation, particularly food scarcity and low agricultural production. He noted that the CBN's withdrawal of 15.5 trillion Naira from the financial system has not yielded the desired results, signaling a need for a potential shift in policy approach. Overall, Chukwu's analysis underscored the complexities of Nigeria's inflationary challenges and the need for a multifaceted strategy to combat rising prices. As policymakers navigate these economic headwinds, a holistic approach that addresses structural issues in food production, energy costs, and foreign exchange stability will be essential to steer the economy towards a path of sustainable growth and price stability.