Nigeria’s Toxic Relationship with Inflation.
Nigeria’s inflation rose to 15.75% (a big leap from the 14.89% recorded in the previous month) in December 2020, which is the highest rate recorded since December 2017 and analysts have predicted higher inflationary pressure in 2021.
Inflation has been on a persistent upward trend in Nigeria since September 2019, around the time the federal government ordered the closure of land borders.
It is no news that Nigerians have been struggling with the effect of the pandemic induced lockdown, insecurity, inflationary pressures, sustained border closure (up on till December 2020), amongst others; all of which has plummeted the economy into recession and have eroded the purchasing power of most Nigerians.
Analysts expect inflation to remain elevated over the year as a result of the lingering effects of the major shocks that spiked 2020’s Inflation. The lingering effects of fuel price increments (+25–30%), electricity price hikes (55–65%), currency (naira) weakness and food price pressure is expected to drive Nigeria’s headline inflation towards a 16%-18% levels in the first half of 2021.
On actions to mitigate the current inflationary trend, Market analysts propose a cost control approach. If Nigeria addresses insecurity issues around the food supply chain, and ensures exchange rate stability, with the hopes that there will be no major increase in international oil prices, the rising inflation rate will be reasonably controlled.
In tightening monetary stance, analysts expect the CBN to raise the MPR by 100–200 basis points some time in the year. They project that Nigeria will exit this pandemic induced recession by the second quarter of the year if there are no re-introduction of lockdown measures.
Based on all that is said, research analysts expect the economy to rebound by about 1.7% to 2% buoyed by increased economic activity and improvement in the global oil market. Though they (analysts) predicted more doom in the short term, they expect a positive spin as we go to the second half of the year.