Nigeria records first inflation slowdown in 19 months

Nigeria has recorded its first inflation slowdown this year with the headline inflation easing 80 basis points to 33.4 per cent in July. The nation has also commenced the implementation of duty-free import of food items. This positive development comes as a breath of fresh air to many investors and consumers who have been grappling with high inflation rates for a substantial period. Paul Alaje, a Senior Economist at SPM Professionals, shared insights on this macroeconomic shift during an interview with CNBC Africa. Alaje expressed cautious optimism about the trajectory of inflation numbers, highlighting the reduction in non-monetary components contributing to the decline. He emphasized the need for sustained efforts to address supply-side challenges to ensure a continued downward trend in inflation rates. Despite the promising decrease in inflation, concerns linger around high food inflation, a key driver of overall inflation levels. Alaje noted that double-digit inflation is likely to persist for the foreseeable future, with a possibility of extending into the end of the year. To alleviate food supply challenges, Nigeria recently allowed duty-free imports of food items, a move aimed at stabilizing food prices and curbing inflationary pressures. However, Alaje cautioned that prolonged reliance on food imports could strain foreign reserves and escalate currency devaluation. He underscored the importance of diversifying strategies beyond duty tweaks to tackle supply chain disruptions effectively. Alaje proposed collaboration between the government and private sector to enhance domestic food production and reduce dependency on imports. Moreover, he stressed the significance of maintaining stable energy costs to support local industries and contain inflation. Reflecting on historical examples, Alaje highlighted the detrimental impact of fluctuating energy prices on inflation rates in past economies. Drawing parallels with countries like Germany and Japan, he advocated for strategic measures to stabilize energy costs and drive economic growth. In light of the recent inflation slowdown, Alaje urged monetary authorities in Nigeria to adopt comprehensive policies that go beyond interest rate adjustments. He emphasized the importance of sterilizing excess liquidity in the economy to mitigate inflationary pressures effectively. Alaje cautioned against excessive deficit financing and called for sustainable funding solutions through mineral resource exploitation and export diversification. As Nigeria navigates the complex macroeconomic landscape, it faces the dual challenge of managing inflation dynamics and bolstering economic resilience. The implementation of targeted fiscal and monetary measures will be pivotal in steering the country towards sustainable growth and stability in the long run.