Vetiva: Nigeria, Ghana inflation to moderate in h2’24 as base effects kick in

Vetiva Research has released its second half of 2024 Sub-Saharan Africa Macroeconomic outlook report, shedding light on the potential trajectory of inflation in Nigeria and Ghana. The research firm anticipates that inflation in Nigeria may remain stubbornly high but could see a moderation in the coming months, signaling a possible end to the aggressive hiking cycle since 2006. Additionally, Vetiva Research expresses cautious optimism regarding the undervalued naira at the current exchange rate in Nigeria. On the other hand, for Ghana, the report forecasts a similar moderation in inflation as the country secures more external funding to alleviate FX pressures. Ibukun Omoyeni, Economist for Sub-Saharan Africa at Vetiva Research, provided insights during a recent interview with CNBC Africa to discuss the report in detail. Omoyeni delved into the global economic landscape, drawing parallels between the United States' approach to inflation and the adjustments observed in African central banks, primarily focusing on West African countries like Nigeria. Highlighting the Federal Reserve's response to inflation, Omoyeni emphasized the sticky nature of inflation in the US, standing at approximately 3.3%, as compared to the UK and the EU where inflation has dipped below 2.5%. He suggested that without a significant drop in oil prices, the US might not experience a considerable moderation in inflation, projecting a figure around 2.7% by the end of the year. Omoyeni then moved on to Nigeria, forecasting baseline inflation around 31% with a potential room for rate hikes of 100 basis points in July. Regarding the outlook for the Nigerian naira, Omoyeni acknowledged the currency's undervaluation and the need for catalysts to drive it towards fair value. He acknowledged the challenges faced in the first half of the year due to the low naira value impacting various sectors like manufacturing and trade. However, he expressed optimism in the currency's stabilization supported by multilateral inflows and foreign portfolio investments, pointing out that Nigeria had witnessed foreign portfolio inflows amounting to $4 billion, a figure not seen since 2017-2018. Omoyeni stressed the significance of refining as a potential game-changer for Nigeria's economic landscape, citing the positive impact it could have on the naira's valuation through reduced import bills. He highlighted the potential benefits of increased domestic refining of crude oil and the substantial boost it could provide to the refinery sector in the medium term. Looking ahead, Omoyeni touched on the negative real return rates for investors and their interplay with activities such as open market operations and treasury bills. He also referenced the expected debt stock increase by the end of the year, including the oil-backed Afrixim Bank loan and forthcoming Eurobond issuance. Omoyeni's insights underscored the complex dynamics at play in the Nigerian and Ghanaian economies, pointing towards a potential shift in inflation trends and the importance of strategic interventions, such as refining, to drive economic growth and stability.