Will Nigeria achieve its inflation target?

Nigeria's inflation rate saw a slight increase for the first time in three months, rising by 55 basis points to 32.7 per cent in September. Food inflation also surged to 37.7 per cent, while core inflation stood at 27.43 per cent. These numbers have sparked concerns and discussions on the country's inflation trajectory, fiscal position, and monetary policy stance. Muda Yusuf, Director at the Center for the Promotion of Private Enterprises, recently shared insights on these critical issues in an interview with CNBC Africa. Yusuf highlighted the key drivers of inflation, emphasizing the challenges posed by exchange rate volatility and energy costs. The exchange rate situation has been a cause for worry, with pressures mounting despite efforts by the Central Bank of Nigeria (CBN) to stabilize the forex market. Similarly, energy costs, particularly the drive for complete deregulation of petrol prices by the Nigerian National Petroleum Corporation (NNPC), have contributed significantly to inflationary pressures. The pass-through effect of petrol price increases on inflation is notable in an economy where a vast majority of movements rely on road transportation. In addition to these cost pressures, Yusuf noted an uptrend in money supply, driven by surging liquidity from the fiscal side. The influx of funds into the economy, especially after FARC allocations, is further fueling inflationary tendencies. The uncertain pricing metrics and government's stance on subsidies are expected to introduce new challenges to Nigeria's inflation trajectory in the near term. Yusuf emphasized the need for a cautious approach to subsidy removal, as abrupt disengagement could lead to social and political repercussions. Discussions around pricing variables for entities like the Dangote refinery will be contingent on the government's subsidy policy and market dynamics, such as crude oil prices and exchange rate fluctuations. The monetary policy decisions and fiscal reforms in Nigeria are crucial in steering the economy towards stability. Yusuf recommended a pause on monetary policy interventions, suggesting a shift towards fiscal measures to tackle inflation effectively. He stressed the importance of activating fiscal policy instruments like taxes and tariffs to reduce import costs and support local production. The economic stabilisation plan in Nigeria, with its focus on fiscal policy, presents an opportunity to address inflationary pressures and enhance market stability. However, Yusuf cautioned against overlooking the social impact of reforms, particularly regarding energy prices and foreign exchange rates. Balancing economic objectives with social considerations and recognizing instances of market failure will be key in formulating effective government interventions. As Nigeria navigates its inflation trajectory, the fine-tuning of policies and continuous monitoring of reforms will be essential in achieving sustainable economic growth and stability.