Analysts have highlighted the role of relative stability in Nigeria’s foreign exchange (FX) market in easing inflationary pressures. The country’s inflation rate declined for the second consecutive month in February, reaching 23.2% year-on-year, marking its lowest level since June 2023. This reduction is attributed to various factors, including improved food supply due to late harvests, the federal government’s strategic grain distribution, and high base effects from the previous year.
A report by Afrinvest noted that food inflation, which makes up 40% of the inflation basket, dropped significantly by 2.6 percentage points to 23.5% year-on-year in February. However, core inflation, which excludes volatile items such as food and energy, edged up slightly from 22.6% to 23.0%. Despite the overall improvement in inflation trends, month-on-month figures showed a more moderate decline, with headline inflation at 2.0%, food inflation at 1.7%, and core inflation at 2.5%, down from much higher levels in January.
While inflation has moderated, analysts cautioned that risks persist, particularly from developments in the energy sector and FX market imbalances. For instance, Dangote’s suspension of Premium Motor Spirit (PMS) supply could cause price hikes, and the demand-supply imbalance in the FX market remains a threat to long-term price stability. Analysts predict that sustained FX stability and energy price stability could lead to further inflation moderation, though challenges remain.
The Central Bank of Nigeria’s (CBN) recent monetary policy decisions have contributed to the inflationary trend. The Monetary Policy Committee (MPC) has maintained interest rates for three consecutive months following aggressive hikes in 2024. The possibility of an interest rate cut in the upcoming May MPC meeting will depend on continued improvements in macroeconomic indicators, particularly inflation. The outlook remains cautiously optimistic, but inflation risks remain influenced by global and domestic factors.
source: This day