The National Bureau of Statistics (NBS) last week released the January 2024 inflation figures with headline inflation rate rising to 29.90 per cent while food inflation rose to 35.41 per cent. This is relative to the December 2023 headline and food inflation rate of 28.92 and 33.93 percents respectively.
Typically inflation in the country slows in January after the spike in year end festivities, however, the data released by the NBS showed that the January 2024 headline inflation rate showed an increase of 0.98 percentage points when compared to the December 2023 headline inflation rate.
Similarly, on a year-on-year basis, the headline inflation rate was 8.08 percentage points higher compared to the rate recorded in January 2023, which was 21.82 per cent. The outturn is 40 basis points higher than Bloomberg’s median consensus estimate of 29.50 per cent.
Food inflation grew stronger in January by 148bps to 35.41 per cent year on year. This according to the NBS was caused by increases in prices of Bread and cereals, Potatoes, Yam and other Tubers, Oil and fat, Fish, Meat, Fruit, Coffee, Tea, and Cocoa. On a month-on-month basis, the Food inflation rate settled at 3.21 per cent, relative to the 2.72 per cent month on month in December 2023.
In the same vein, the core inflation (All items less farm produce and energy) rose by 50bps to 23.59 per cent year on year compared to December figure of 23.06 per cent. The highest increases were recorded in prices of Passenger Transport by Road, Medical Services, Actual and Imputed Rentals for Housing, Pharmaceutical products, Accommodation service, and Passenger Transport by Air. On a monthly basis, the core index settled higher by 40bps to 2.24 per cent month on month in January as against 1.82 per cent in December.
Despite these concerning economic indicators, the Central Bank of Nigeria remains optimistic, projecting that the inflation rate will decrease to around 21 per cent by the end of the year. However, skepticism prevails among many who argue that the reported inflation rate may not accurately reflect the true economic situation and may never align with the CBN’s projected levels.
The volatility in the daily price movements of goods and services, sometimes changing almost two or three times within a single day, has heightened concerns that Nigeria is on the brink of hyperinflation. Hyperinflation, an economic term used to describe rapid, excessive, and uncontrollable general price increases, is typically characterised by inflation rates exceeding 50 percent per month.
Hyperinflation is caused by a rapid increase in a country’s money supply, typically when a government creates more and more money. As more money becomes available, the value of each individual unit of currency drops and prices rise. Money supply in the economy has been on the rise with currency outside banks rising to all time high.
Data from the CBN showed that currency outside the banking system has continued to rise, reaching 94 per cent of total cash in circulation in December 2023 compared to 92 per cent that was recorded in November of last year.
This has seen the value of cash outside banks rising to N 3.43 trillion out of the N3.65 trillion that is the total currency in circulation compared to N3.08 trillion that was outside the banking industry of the N3.34 trillion CIC in November last year.
Hyperinflation can also occur when a sudden increase in demand outpaces supply, called demand-pull inflation, a situation that insecurity has bolstered in the country particularly for food items which make up the chunk of the inflation basket.
As Nigeria grapples with the challenges of rising inflation, the implications for businesses, households, and the overall economic stability are profound. The potential shift towards hyperinflation raises questions about the effectiveness of current economic policies and the need for swift and decisive measures to curb the escalating inflationary pressures.
Experts argue that a comprehensive approach, including monetary policy adjustments, fiscal measures, and structural reforms, is imperative to address the root causes of inflation and stabilise the economy. The urgency to implement such measures becomes even more critical as hyperinflation threatens to erode the purchasing power of the Nigerian population, leading to increased economic hardship for many.
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