The rate of inflation at the end of December 2024 stood at 34.80 per cent which exceeded the 21.40 per cent that the Central Bank of Nigeria had set as a target for the year.
According to the latest data from the National Bureau of Statistics released on Wednesday, the headline inflation rose by 2.44 per cent month-on-month to 34.80 per cent from 34.60 per cent in November 2024.
At an economic briefing of the joint Senate Committee on Finance, Banking, Insurance, and Other Financial Institutions and National Planning in 2024, the Governor of the CBN, Olayemi Cardoso, revealed the 21.40 per cent inflation target.
Addressing the lawmakers, he said, “Empirical analysis has established that money supply is one of the factors fuelling the current inflationary pressure. For instance, an analysis of the trend of the money supply spanning over nine months shows that M3 increased from N52.01tn in January 2023 to N68.25tn in November 2023, representing N16.24tn or a 31.22 per cent increase over the period. The increase in net foreign assets following the harmonisation of exchange rates and the N3.22tn ways and means advances were the major factors driving the increase in money supply.
“We have also halted quasi-fiscal measures totalling over N10tn by the Central Bank of Nigeria previously disguised as development finance interventions. These measures contributed to an increase in the money supply, thereby raising prices to the levels of inflation we are grappling with today.
“The CBN’s adoption of an inflation-targeting framework involves clear communication and collaboration with fiscal authorities to achieve price stability, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities. Distinguished Senators, Inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, aiming to rein in inflation to 21.4 per cent in the medium term, aided by improved agricultural productivity and easing global supply chain pressures.”
This target was reiterated in its Macroeconomic Outlook for Nigeria, published in March 2024, titled ‘Price Discovery for Economic Stabilisation,’ where the CBN said the outlook for the Nigerian economy indicated broad resilience, with continued growth, expected moderation of inflation, and greater exchange rate stability.
“Inflation, though still elevated, is projected to moderate to 21.40 per cent, within a range of 19.84 and 25.35 per cent, from 28.92 per cent in December 2023, as the transition to an inflation-targeting lite framework and increasingly tight monetary policy stance effectively anchors expectations. Liquidity conditions are expected to be adequately tight, as the yield curve shifts upward and buoys capital inflows,” the CBN projected.
To achieve this target, the Monetary Policy Committee increased the benchmark rate by more than 800 points in 2024 in a bid to rein in inflation.
However, the latest Consumer Price Index report indicated that in December 2024, the headline inflation rate showed a marginal increase of 0.20 per cent compared to November 2024.
The NBS blamed the rise on an increase in demand for goods and services during the festive season.
On a year-on-year basis, the headline inflation rate was 5.87 per cent higher than the rate recorded in December 2023 (28.92 per cent).
“This shows that the headline inflation rate (year-on-year basis) increased in December 2024 compared to the same month in the preceding year (i.e., December 2023). On the contrary, on a month-on-month basis, the headline inflation rate in December 2024 was 2.44 per cent, which was 0.20 per cent lower than the rate recorded in November 2024 (2.64 per cent). This means that in December 2024, the rate of increase in the average price level is slightly lower than the rate of increase in the average price level in November 2024,” part of the NBS report read.
Also, the average CPI for the 12 months ending December 2024 was 33.24 per cent, higher than the CBN’s target of 21.40 per cent. It was also 8.58 per cent higher than the 24.66 per cent recorded in December 2023.
Before now, Proshare analysts believed that the headline inflation rate would average 32.57 per cent in 2024, diverging from the CBN’s 21.40 per cent inflation target.
In June, the World Bank stated that monetary policy tightening by the CBN may not rein in inflation and remains a risk to Nigeria’s growth outlook.
The international lender in its Global Economic Prospects titled, ‘Growth Stabilising but at a Weak Pace,’ said, “Growth in Nigeria is projected to pick up to 3.3 per cent this year and 3.5 per cent in 2025. After the macroeconomic reforms’ initial shock, economic conditions are expected to gradually improve, resulting in sustained but still modest growth in the non-oil economy.
“Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation.”
Also weighing in on the unlikelihood of inflation dropping to 21.40 per cent was United Capital Plc in a special report titled, ‘Economic and Financial Markets H1-2024 Review & H2-2024 Outlook,’ which estimated that the country’s headline inflation would be around 27.1 per cent by December 2024, “assuming no significant shocks to domestic prices.
“However, headline inflation is unlikely to meet the CBN’s target of 21.4 per cent by December 2024. The disinflation trend is expected to become more pronounced by July 2024. We estimate headline inflation to be around 27.1 per cent by December, assuming no significant shocks to domestic prices.”
The Nigerian Economic Summit Group, in its mini report series titled ‘Inflationary Pressures In Nigeria: Getting Monetary Policy To Work,’ said the CBN faces challenges that limit its capacity to influence price stability.
Some of the reasons cited include fiscal dominance, institutional weakness, and information deficiency. NESG went on to call for reforms that would strengthen these weaknesses.
“While the extent of tightening could be debated because of the structural nature of inflationary pressures in Nigeria, the return to orthodox monetary policy and the decision to embark on an inflation-targeting strategy are commendable. Ramping up productivity is the bedrock of placating Nigeria’s inflationary pressure.
“Policy coordination remains a major challenge for fiscal and monetary policy units. A framework for effective macroeconomic policy coordination needs to be established to achieve the much-needed price stability, and the two sides must commit to act accordingly to bring down the inflation rate,” the NESG stated.