34.8% inflation rate triggers fears of rising prices, hardship

The Organised Private Sector has expressed worry over the continued hike in the inflation rate in Nigeria, stressing that this will further raise the cost of production, raw materials, logistics, and machinery, among others.

On Wednesday the National Bureau of Statistics reported that Nigeria’s inflation rate rose to 34.80 per cent in December 2024, reflecting a slight increase from the 34.60 per cent recorded in November.

According to the latest Consumer Price Index report, the marginal rise of 0.20 per cent was attributed to heightened demand for goods and services during the festive season.

On a year-on-year basis, the December inflation rate marked a significant increase of 5.87 percentage points compared to 28.92 per cent in December 2023.

This highlights a continued upward trajectory in consumer prices, driven by economic challenges such as currency depreciation, high energy costs, and persistent supply chain disruptions.

According to the NBS report, the average inflation rate for the 12 months ending December 2024 stood at 33.24 per cent, up from 24.66 per cent recorded during the same period in 2023.

The report read, “In December 2024, the headline inflation rate was 34.80 per cent relative to the November 2024 headline inflation rate of 34.60 per cent.

“Looking at the movement, the December 2024 headline inflation rate showed a marginal increase of 0.20 per cent compared to the November 2024 Headline inflation rate. This was due to December festive period increases in demand for goods and services.

“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).”

The rise reflects sustained pressures on the cost of living throughout the year, affecting both urban and rural areas.

The report highlighted that food and non-alcoholic beverages accounted for the largest share of the inflationary pressure, contributing 18.02 per cent to the overall figure.

Other key contributors included housing, water, electricity, gas, and other fuels, which added 5.82 per cent, and transport, which contributed 2.26 per cent.

Smaller contributions were noted from sectors such as health and communication, which accounted for 1.05 per cent and 0.24 per cent, respectively.

Urban inflation was higher than rural inflation during the period under review.

The urban inflation rate for December 2024 stood at 37.29 per cent on a year-on-year basis, representing a rise of 6.30 percentage points from 31.00 per cent recorded in December 2023.

On a month-on-month basis, urban inflation dropped slightly to 2.56 per cent from 2.77 per cent in November.

Rural inflation, on the other hand, rose to 32.47 per cent year-on-year, 5.37 percentage points higher than the 27.10 per cent recorded in December 2023.

However, the month-on-month rural inflation rate also experienced a marginal decline, dropping to 2.32 per cent from November’s 2.51 per cent.

The report further revealed that food inflation continued to surge, reaching 39.84 per cent on a year-on-year basis in December 2024, compared to 33.93 per cent in December 2023.

The rise was attributed to increases in the prices of staples such as yams, rice, maize, and dried fish.

Despite this, food inflation on a month-on-month basis eased slightly to 2.66 per cent from 2.98 per cent in November, driven by price reductions in items like local beer, soft drinks, and tubers.

Core inflation, which excludes volatile agricultural produce and energy, stood at 29.28 per cent year-on-year in December, up from 23.06 per cent in December 2023.

The NBS noted that the sharpest price increases were observed in transport fares, meals at local restaurants, and personal grooming services.

OPS reacts

The National Vice President of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, said the continuous upward trend in the inflation rate means that the cost of production would be going higher.

He said, “The cost of raw materials, logistics, machinery, and other important inputs of manufacturing will be going up. This means that the prices at which such products will be sold will become higher. People’s ability to pay for those goods, especially the locally manufactured ones, will be reduced, leading to higher inventory. And it’s a vicious cycle.

“The danger there also is that if the cost of imported goods is cheaper than those that are made locally, people will tend to buy the imported products. And that may mean more business closures. It is, however, ironic.”

“Let me observe that despite the continuous hike in interest rates, which is supposed to fight inflation, inflation still keeps going up. What that means is that the Nigerian economy is defying economic theories.”

On his part, the National President of the Association of Small Business Owners of Nigeria, Dr Femi Egbesola, said the rising inflation has negatively impacted the private sector and the economy as a whole.

He said, “This is because inflation has led to a loss of consumers purchasing power, increased production costs, and a reduction in profitability. Inflation has made our businesses less attractive for investors and by extension, the economy.

“It has also led to reduced exports as it has made our exports less competitive in the international market. On the economy, it has reduced our economic growth, Increased unemployment, and led to a fall in our national income, ultimately leading to increased poverty.

“Rising Inflation has eroded the value of our savings and investment in the private sector and the economy. It has significantly increased the cost of governance.”

The Director-General of the Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture, Olusola Obadimu, said the hike in inflation in December will be difficult to contain, especially given the cost-push inflation type.

“It will be difficult to contain inflation given the present realities as what we’re experiencing arises from cost-push effects,” Obadimu stated.

He observed Nigeria’s inflation continued to rise despite the Central Bank of Nigeria’s repeated monetary policy rate hike, explaining it was never going to effectively cushion inflationary pressures.

The NACCIMA DG submitted, “Continual increment in MPR rates wouldn’t work in this situation. It can only work in a demand-pull inflation environment where prices are going up as a result of excess demand over supply and you then increase rates to tame consumption. That is not our case here.”

Obadimu explained inflation thrives with any cost input actions in the economy, using the manufacturing sector – which has repeatedly lamented bearing the brunt of inflation – as an example.

He stressed, “For Manufacturers, ex-factory prices are rising as a result of rising costs of inputs/ factors of production. Interestingly, capital accessible through loans is also an input cost. “So, an increase in interest rates for accessible capital will automatically further propel rising costs of products and services.”

NACCIMA urged inflation-lowering policy directions to focus on addressing input costs so prices would come down.

He explained the steps to achieve such input cost reduction, including increasing local business competitiveness and imbibing fiscal discipline, especially in the public sector.

“We need to make our businesses competitive, particularly in our quest to drive exports of value-added non-oil products and services,” the NACCIMA DG declared. “We need to also control our consumption taste for foreign goods and exhibit greater fiscal discipline, particularly as it concerns the cost of governance.”

He also encouraged paying more attention to infrastructure to ensure increased ease of doing business and fostering an environment that encourages startup ideas and business growth.

“That’s where more employment will come from and that’s where more tax revenue will come from,” Obadimu added

The Director of the Centre for Promotion of Private Enterprise, Dr Muda Yusuf noted that while the increase in December headline inflation was marginal at 0.2 per cent compared to November’s figures, the inflationary trend is still troubling.

However, Yusuf observed the inflation outlook for 2025 promises tends to be positive due to “Sustained moderation in exchange rate volatility, improvements in foreign reserves, the prospects of easing geopolitical tensions with the inception of a (second Donald) Trump presidency (of the USA) in a few days and a strong base effect, given the high inflationary pressures experienced in 2024.”

The CPPE recommended pausing further monetary policy rate hikes, reducing public sector debt, and fixation on revenue generation of ministries, departments, and agencies, to ensure a further moderation in inflationary pressures.

The CPPE director advised, “Pause on monetary policy tightening and interest rate hikes by the CBN to reduce business operating costs and reduce fiscal risks to macroeconomic stability through a reduction in fiscal deficit and deceleration in growth of public debt.

“Excessive pressure on MDAs to boost revenue and increase Internally Generated Revenue has profound inflationary implications.”

Yusuf further denounced what he described as “arbitrary revenue targets for MDAs,” explaining that the “reality is that such pressures are invariably transmitted to investors in the form of higher fees, levies, penalties, import duties, regulatory charges etc (whose) outcomes are in conflict with government aspirations to boost investment, curb inflation and create jobs.”

Rather, Yusuf suggested, the government’s revenue targets should be based on empirical studies, the absorptive capacity of the economy and due consideration of the wider economic implications.

“Obsession with revenue would hurt investments, worsen inflationary pressures, aggravate poverty and impede economic growth. There should be a careful balance act between revenue growth aspirations, desire to boost investment and commitment to moderate inflation,” the economist maintained.