Experts: Nigeria’s Inflation to Persist Without Stabilized Exchange Rate

Nigeria’s inflation rate has risen to its highest level in two decades, 26.72%, according to the national statistics bureau. The latest figure keeps millions of people in Africa’s largest country struggling to cope with economic challenges that, analysts say, are exacerbated by government reform policies. 

Nigeria’s inflation rate in September rose for a ninth consecutive month from an already high 25.8%, recorded in August.

On a year-on-year basis, the inflation rate was 5.94% higher than when compared to the 20.77% recorded in September of 2022.

The National Bureau of Statistics says the trend was caused by an increase in prices of food items like bread and cereals, meat, vegetables, milk, cheese, tubers, fish, fruit, oil and fat.

But economic observers say recent government policies, including the elimination of fuel subsidies in May, are to blame for the surge and predict the trend might continue.

“The policies were not handled properly. When you’re doing reforms, there’s what we call sequencing of reforms,” said Ogho Okiti, the chief executive officer of ThinkBusiness Africa. “What is happening is that they’re learning on the job. We may actually reach 28-29% going by the pattern we’re seeing. The reason is simple: until the exchange rate stabilizes, inflation will not stabilize in Nigeria. We now have the value of naira devalued by over 100% between June and today, within the space of four months.”

Nigerian President Bola Tinubu embarked on bold policy reforms since entering office in May, scrapping the expensive fuel subsidy payments — a package that ensured fuel was kept within affordable limits at pumps.

The president, soon after that, floated the national tender — the naira — against other global currencies, causing it to lose more than half its value.

The reforms hurt the economy, triggering criticism of the government.

This month, a Nigerian workers union shelved plans to embark on a nationwide strike to protest the government policies after a meeting with authorities.

Okiti said pressures will continue to mount on government policymakers and consumers alike.

“The three kinds of pressures — social, political and economic pressures on the government,” Okiti said. “My hope is that this does not boil over into something very catastrophic, because there’s also this illusion that Nigerians will just accept [these realities]. That may not be the case.”

But economic analyst Emeka Okengwu argues Nigeria’s economy could have been worse without the president’s policy reforms.

“If he didn’t remove the fuel subsidy and you’re spending over 100% of your total revenue to be able to just support a social service, what do you think would’ve happened to the economy?” Okengwu asked. “It would’ve collapsed. You won’t be talking about inflation anymore, you’ll be talking about perflation. Sometimes economic development is a difficult thing, sometimes we need to pay some very hard prices.”

Nigeria has been recording double-digit inflation since 2016. During a national broadcast on October 1, President Tinubu defended his policies and urged Nigerians to be patient.

Last week, the Central Bank lifted a ban on the sourcing of foreign exchange from official markets for the importation of 43 items, including rice, cement, palm oil products, vegetable oils, and processed meat.