Nigeria's Inflation Hits 34.80% Ahead Of Economic Rebase

Nigeria’s inflation rate rose to 34.80% in December 2024, slightly up from 34.60% in November, according to the latest National Bureau of Statistics (NBS) report. This surge is attributed to increased demand for goods and services during the holiday season, marking a 5.87% year-on-year rise from 28.92% in December 2023.

This is the last inflation figure calculated under the current methodology, with a rebasing scheduled later this month. The rebasing will adjust the base year to 2024 to reflect recent economic shifts, including subsidy removals and an expanded inflation basket, which will now include 960 items instead of 740.

Economists and policymakers are concerned about the inflationary trend, especially as the data overhaul may likely result in revised, lower inflation figures.

Food Inflation Strains Households

Food inflation hit a staggering 39.84% in December, up from 33.93% the previous year, significantly impacting household budgets. The NBS observed a 2.44% month-on-month inflation rate, a slight decrease from November’s 2.64%, suggesting that price increases may be slowing. However, the high food inflation is the key driver behind the overall inflation spike.

The rise in food prices, particularly for items like yam, sweet potatoes, and beer, was further fueled by the December festive season, when demand for goods and services traditionally peaks. The consequences of this inflationary pressure are most severe for the poor and vulnerable, who struggle to afford staple food items like rice, maize, and tubers.

Regional Disparities and Increased Cost of Living

Sokoto, Zamfara, and Edo states saw the highest food inflation rates, reaching 57.47%, 46.39%, and 46.32%, respectively. These regions may face worsening food insecurity and social unrest due to skyrocketing food costs.

The urban-rural divide is also evident, with urban inflation increasing to 37.29% while rural inflation stood at 32.47%. Urban residents, already dealing with high transportation and housing costs, face more financial strain, while rural households, which depend on agriculture, are struggling with reduced purchasing power, especially if the costs of farming inputs continue to rise.

Challenges for Businesses and Investors

High inflation diminishes consumers’ purchasing power, leading to reduced demand for goods and services. Small and medium enterprises (SMEs), which are vital to Nigeria’s economy, may particularly feel the strain. Additionally, rising input costs could force companies to reduce profitability, potentially causing layoffs and rising unemployment.

Furthermore, sustained inflation and economic instability may deter both foreign and domestic investors. Uncertainty regarding price stability and profitability makes Nigeria less appealing for investment, further impeding economic recovery.

Modest Signs of Easing Inflationary Pressure

Although inflation remains high, the NBS observed a slight month-on-month decline in inflation growth. Headline inflation in December stood at 2.44%, down from 2.64% in November. Food inflation moderated slightly to 2.66% in December, compared to 2.98% in November. This reduction signals potential relief, though it remains too small to counteract broader inflation trends.

While there have been slight declines in some food prices, such as for local beer, fruit juices, and cereals, these improvements are not enough to mitigate the overall inflationary pressures.

Core Inflation and Its Impact

Core inflation, excluding food and energy, grew by 53 basis points to 29.28%, up from 28.75% in November. Key drivers include rising costs in areas like transportation, housing, and personal services such as haircuts. The core inflation index increased by 41 basis points to 2.24% month-on-month in December, up from 1.83% in November.

Outlook for 2025: Possible Economic Stabilization

Dr. Muda Yusuf, Director/CEO of the Centre for the Promotion of Private Enterprise (CPPE), commented on the persistent inflationary pressures and suggested a positive outlook for 2025. Factors such as stabilization in exchange rates, improvements in foreign reserves, and the potential easing of geopolitical tensions under the incoming U.S. presidency could help moderate inflation in the coming year.

To ease inflationary pressures further, CPPE recommended that the Central Bank of Nigeria (CBN) pause on tightening monetary policies and interest rate hikes to reduce operating costs for businesses. Additionally, fiscal policies should focus on reducing the fiscal deficit and decelerating public debt growth.

Yusuf also raised concerns about the National Assembly’s focus on revenue generation, stressing that pressure on Ministries, Departments, and Agencies (MDAs) to meet revenue targets could inadvertently fuel inflation and hamper investment. A balance must be struck between generating revenue, boosting investment, and controlling inflation.

Key Takeaways:

Nigeria’s inflation rate reached 34.80% in December 2024, primarily driven by food inflation.
Food inflation surged to 39.84%, severely impacting household budgets, particularly for basic staples.
Regional disparities in inflation rates highlight the growing threat of food insecurity in certain states.
Urban and rural populations alike are feeling the pinch of rising costs.
Business and investor confidence is at risk due to the ongoing inflationary pressures.
There is hope for moderation in inflation in 2025, with appropriate fiscal and monetary policies.