Nigeria’s inflation crisis will be prolonged: Capital Economics

The inflation rate in Nigeria that is at its highest in nearly 30 years will stay elevated for long, analysts at Capital Economics have said.

“A recent surge in food prices in Nigeria presents real risks to the optimistic tone that the authorities are trying to strike on the inflation outlook,” they said in a note on Friday. “Tackling the structural impediments to food production remains key to reducing inflation risks.”

The London-based economic research firm noted that following on from last week’s labour union strikes, the president has had to grapple with reports of food price surges.

“Markets across Nigerian states have seen the Nigerian favourite, tomatoes, more than double in price over recent months. UN FAO data suggests price are rising in other staple food items.”

The analysts said that over May, rice and potatoes recorded price rises of 3% and 5% respectively, with pest and disease suggested as a driver of recent increases.

“The government has shown unease about food vulnerabilities in recent weeks, removing food and fertiliser levies for example. But our concern is that these actions are coming too late and that the inflation crisis will be prolonged,” they said.

They said this would be a hammer blow for President Bola Tinubu.

“It would probably result in further efforts to cushion household incomes, but that would come with a fiscal cost. National labour unions are likely to be incorporating food price developments into their minimum wage negotiations too. The CBN will also be watching developments closely,” the analysts said.

Just last month, Governor Olayemi Cardoso was painting an optimistic picture on the inflation outlook and the moderation in the month-on-month inflation rate in April. 

“The food price surge clearly has structural factors at its heart, including insecurity and low agricultural productivity. The CBN has admitted it can only do so much with its monetary tools to help, meaning that the government must step up to the plate by providing the structural reforms the economy needs, including better electricity and transport infrastructure and climate adaptation.”