Analysts have said inflation in Africa’s biggest economy is expected to slow by the second half of this year as global commodity prices moderate from their peak.
The inflation rate in Nigeria quickened for the 10th straight month in November last year to 21.47 percent, weakening the purchasing power of the naira and making many poorer.
“Our outlook for prices is benign as we don’t expect it to be as elevated as it was in 2022,” said Abiodun Keripe, managing director of Afrinvest Consulting Limited.
His company’s outlook report projects inflation to moderate to 17.7 percent in 2023 from 18.6 percent in 2022.
“It does not mean a complete removal of inflationary pressures but would happen at a slower pace because of the base year effect and Russian-Ukraine tension which could ease up a bit,” Keripe said.
Analysts at Financial Derivatives Company Limited led by Bismarck Rewane, a renowned economist, expect inflation to drop to 16.3 percent from 19.5 percent in 2022.
“Inflationary pressures to ease as global commodity prices moderate from their peak in 2022,” they said.
Damilola Adewale, a Lagos-based economic analyst, said consumer prices in the first half of the year may continue to be on the uptrend as inflationary drivers including high fuel prices and foreign exchange scarcity persist.
“However, inflation reading from National Bureau of Statistics (NBS) might show otherwise considering the high base effect associated with the 2022 price level,” he said.
The NBS attributed the price increase to the increase in cost of importation due to the persistent currency depreciation and the general increase in the cost of production.
“Increase in energy prices are the likely factors responsible for the increase in annual inflation rate, caused by the Russia-Ukraine war,” it said.
Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said he does not foresee much happening in exchange rate depreciation until June.
“The major policy regime is a key contributory factor to the exchange rate problem that we have, apart from external factors. So, from that point of view, there may not be any major changes up until maybe June when we have a new administration,” he said.
In the first half of last year, the surge in inflation rate led to a five-year high increase in household consumption expenditure as it rose to N27.3 trillion, a 12 percent increase from N24.3 trillion in the corresponding period of 2021, according to NBS.
The high inflationary pressures is also one of the major economic headwinds that led to a slow growth in salaries and wages, which grew at the slowest pace since the third quarter of 2020 to 3.93 percent in Q2 2022 from 6.48 percent in the previous quarter.
This made many Nigerians poorer than they were in 2021, with 63 percent of the population (133 million) suffering from multidimensional poverty.
Recently, the World Bank said the country’s accelerated inflation growth has eroded the N30,000 minimum wages by 35 percent, widening the poverty net with an estimated five million people in 2022.
A recent consumer pulse survey conducted by Pierrine Consulting, a specialist tech-first marketing research and strategy firm, said consumers currently run on budgets, practise reducing expenses, and have savings to sustain high living costs.
“When asked how they manage their disposable income, living on a budget, reducing the number of goods purchased, avoiding unplanned spending, and reducing expenses were top of the list of things they do to manage their incomes,” the report said.
Moses Ojo, a Lagos-based economic analyst, said the inflation would slow down after the elections.
“But by the beginning of the second half, I expect inflation to start moderating gradually because the general election spending would have found its way into the banking vaults,” he said.
Some analysts believe that the slowdown in inflation rate might be short-lived due to the planned removal of fuel subsidy.
“Inflation is likely to trend lower in 2023; however, that could be short-lived if the planned removal of fuel subsidy by June-2023 takes effect,” Ayorinde Akinloye, an investor relations analyst at Seplat Energy Plc, said.
Last year, Zainab Ahmed, minister of finance, budget and national planning, said the federal government would commence a phased removal of petrol subsidy from June 2023.
She said provision for the removal of the subsidy had already been made in the 2023-2025 Medium-Term Plan.
Adewale said if subsidy is removed, fuel prices will notch higher. “Some analysts estimate that if oil prices trade above $80/barrel, fuel prices will be around N350 to N400 per litre which impacts transport, logistics, and other basic services.”
“Moreover, he added that there are no inflationary shock absorbers the government is putting in place to mitigate the spark in prices,” he said.