Is Nigeria at a turning point?

This week, the National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) data for July and revealed a turnaround in headline inflation, which declined to 33.40% year-on-year in July 2024. This marks a slowdown from the 28-year high of 34.19% recorded in June 2024. The slowdown, which represents a month-on-month decline of 0.8% points, is attributed to a high base effect and the recent interest rate hike by the Central Bank of Nigeria (CBN). However, the rate remains significantly higher, by 9.32% points, compared to the 24.08% recorded in July 2023.

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This slowdown in the benchmark index ends a 29-month period of continuous inflation acceleration that began at 15.60% in January 2022. The slowdown can be attributed to the CBN's anti-inflation measures, including the hike in the policy rate to 26.75% at its last meeting, as well as the federal government's efforts to mitigate the impact of rising food prices, increased PMS prices due to subsidy removal and further devaluation of the naira.

In particular, there was a decline in the number of items contributing to overall inflation at the department level, including food and non-alcoholic beverages, housing, utilities, clothing, health services, and more. In addition, the overall inflation rate in July 2024 was 2.28% month-on-month, slightly lower than the 2.31% in June 2024, indicating a slower pace of increase in the average price level.

The food index, a key driver of the overall index, showed a positive trend, declining year-on-year to 39.53% from 40.87% in June 2024. This improvement is partly due to federal government initiatives such as the suspension of import duties, value added tax and other tariffs on staple foods and raw materials aimed at boosting domestic food production.

The core inflation index, on the other hand, rose slightly to 27.47% from 27.40% in June, due to higher costs for air tickets, road transportation, rent, accommodation services and healthcare. The increase in core inflation was due to higher energy costs and higher electricity tariffs.

The July 2024 Inflation Report also reveals significant regional differences in inflation rates in Nigeria. Year-on-year, Bauchi (46.04%), Jigawa (40.77%) and Kebbi (37.47%) recorded the highest inflation rates, while Benue (27.28%), Delta (28.06%) and Borno (28.33%) recorded the smallest increases. Month-on-month, Abuja (3.91%), Borno (3.84%) and Enugu (3.76%) recorded the highest inflation increases, while Taraba (0.17%), Kwara (0.62%) and Ondo (0.91%) recorded the smallest increases.

On food inflation, Sokoto (46.26%), Jigawa (46.05%) and Enugu (44.06%) recorded the highest year-on-year increases, while Adamawa (33.48%), Bauchi (35.10%) and Benue (36.41%) reported the lowest rates. On a monthly basis, Borno (5.07%), Sokoto (4.99%) and Enugu (4.17%) recorded the highest increases, while Kwara (0.51%), Taraba (0.56%) and Ondo (0.68%) recorded the lowest increases.

Cowry Research notes a significant turnaround in both headline and food inflation, a critical development after nearly 30 months of sustained inflationary pressures. This moderation, the first since January 2022, reflects the coordinated efforts of Nigeria's monetary and fiscal authorities. The recent tightening of monetary policy by the CBN and government interventions to contain rising food prices have contributed to this turnaround. These measures have helped offset the inflationary impact of subsidy removal and the devaluation of the naira, providing some relief to Nigerians. Looking ahead, headline inflation is expected to slow further to 32.86% in August, driven by the harvest season.