Nigeria’s headline inflation rate is projected to decrease by 25 basis points to 34.5% in December 2024, according to a report released by Afrinvest Research on Saturday. The anticipated moderation is attributed to the high base-year effect on the food inflation sub-basket and a further recovery in the exchange rate, with the naira expected to strengthen below N1,600/$ levels.

November Inflation at Two-Decade High

The National Bureau of Statistics (NBS) had previously reported that the headline inflation rate for November climbed by 70 basis points to 34.6% year-on-year. This marked the highest rate in over two decades, highlighting ongoing economic challenges.

On a month-on-month basis, the inflation rate remained steady at 2.6%, bringing the year-to-date average monthly inflation to 2.5%. This figure surpasses the Federal Government’s 2024 projection of 1.8%, resulting in an annualized inflation rate of 33.0%, significantly higher than the government’s target of 21.4%.

Drivers of Inflation

The Afrinvest report identified food inflation as a primary contributor to the rising headline inflation. Food inflation increased by 77 basis points to 39.9% year-on-year in November, the highest rate in five months. On a month-on-month basis, food inflation inched up by 4 basis points to 2.98%.

The surge in food prices is attributed to:

• Flooding: Over 700,000 hectares of cropland were destroyed across 31 states during the main harvest season.
• Insecurity: Persistent insecurity in agricultural regions disrupted farming activities.
• Weak Mechanisation: Limited adoption of advanced farming technologies exacerbated production inefficiencies.

Core inflation, which excludes volatile items like food and energy, reached 28.8% year-on-year in November—the highest in over two decades. However, on a month-on-month basis, core inflation eased slightly, declining by 30 basis points to 1.8%, the lowest level since December 2023.

Impact of Fuel Prices and Exchange Rate Recovery

The easing of core inflation was linked to several factors:

• Declining Fuel Prices: A 3.8% month-on-month reduction in average PMS (petrol) prices, which dropped to N1,140 per litre, alleviated some inflationary pressures.
• Exchange Rate Stability: The naira recovered to N1,672.69/$ in the official market and N1,720.00/$ in the parallel market, reducing imported inflation.
• Sectoral Trends: Slower price increases were recorded in the transportation and communication sectors, which grew by 18.5 percentage points and 0.4 percentage points, respectively, compared to October’s 20.1 percentage points and 0.8 percentage points.

Annual Inflation Forecast

For the full year 2024, the headline inflation rate is expected to average 33.1%, exceeding the Federal Government’s projection by 11.7 percentage points. This divergence underscores the challenges in addressing inflationary pressures in the economy.

Policy Recommendations

Economic experts have emphasized the need for sustained and targeted policy measures to combat inflation and stabilize the economy. Suggested strategies include:

• Boosting Agricultural Productivity: Investments in mechanization and flood-resilient farming practices to improve food supply.
• Exchange Rate Management: Policies to strengthen the naira and reduce reliance on imports.
• Energy Sector Reforms: Addressing structural issues in fuel pricing to avoid inflationary shocks.

Looking Ahead

While the anticipated moderation in December’s inflation offers a glimmer of hope, the overall economic environment remains fraught with challenges. Policymakers must implement robust strategies to manage inflation and foster long-term economic stability.

As reported by Frontpage, Nigeria’s inflation reached 34.6% in November 2024, reflecting a 0.72% increase from October’s 33.88%. This underscores the urgency of addressing inflationary pressures to safeguard economic growth and stability.