Nigeria’s economy is facing a severe shock as the country’s inflation rate reached a staggering 25.80% in August, marking the highest figure since August 2005, according to data released by the National Bureau of Statistics.
This troubling trend in inflation has been steadily rising since May when it stood at 22.41%. In June, it increased to 22.79%, followed by 24.08% in July, and finally reaching 25.80% in August. This surge in inflation can be attributed to a combination of factors, including the removal of the fuel subsidy and the floating of the Naira in the foreign exchange market in June.
President Bola Ahmed Tinubu, in his inaugural speech in May 2023, announced the discontinuation of fuel subsidies, leading to a sharp increase in the price of petrol from N180 per litre to N600 per litre. This move was followed by forex reforms, causing the Naira to depreciate to N915 against the US dollar on the parallel market, up from N720/$1 in June. The official market exchange rate also increased from N465/$1 to N720/$1 during the same period.
These policies have had a cascading effect on the prices of essential goods and services nationwide over the past three months. The rising fuel prices and the Naira’s depreciation have had a direct impact on the country’s inflation rate.
Between May and August, Nigeria’s inflation rate saw a significant increase of 3.39%, compared to the 0.38% rise recorded in June when the fuel subsidy was removed and forex reforms were implemented.
In an attempt to combat the rising inflation, the Central Bank of Nigeria (CBN) decided to tighten monetary policies in July, raising the interest rate to 18.75% from 18.50%. However, these measures have not yielded the desired results.
With the recent appointment of Olayemi Cardoso as the Governor of CBN, there is hope for a change in the country’s economic trajectory. Experts suggest that stabilizing the forex market is crucial to curbing inflation.
Dr. Ayo Teriba, the Chief Executive of Economic Associates, emphasized that the root cause of Nigeria’s inflation woes lies in the instability of the exchange rate. He stated, “As long as Nigeria can’t stem the exchange rate movement, you can’t control consumer prices. That is not a problem of CBN but of macroeconomics.”
Prof Godwin Oyedokun, an accounting and financial development expert at Lead City University, recommended a shift away from the traditional approach of tightening monetary policy to address inflation. He advised the new CBN Governor to review previous policies and design effective strategies.
Idakolo Gbolade, Chief Executive Officer of SD & D Capital Management, called for proper implementation of fiscal policies and synergy between the CBN and the government’s supervising ministry. He also stressed the importance of ensuring that banks adhere to CBN guidelines for the benefit of the economy.
As Nigeria grapples with soaring inflation, it faces a challenging road ahead in stabilizing its economy and mitigating the impact on its citizens. The fate of the nation’s economy now rests on the shoulders of its new central bank leadership and their ability to implement effective policies.