Nigeria recorded the highest inflation rate among Africa’s ten largest economies in December 2024, a stark economic indicator that has raised serious concerns among policymakers, businesses, and households. Data from the International Monetary Fund (IMF) revealed that Nigeria’s inflation rate stood at a staggering 34.80%, a figure that places it well above its peers on the continent and underscores the persistent economic challenges facing Africa’s largest economy.

Comparative Inflation Trends Across Africa

The IMF data showed a stark contrast between Nigeria and other major economies in Africa. While Nigeria grappled with soaring inflation, other top economies such as South Africa, Egypt, and Morocco demonstrated progress in reining in inflationary pressures.

• South Africa, Africa’s second-largest economy, achieved a significant reduction in inflation, dropping from 5.5% in December 2023 to 2.8% by December 2024.
• Egypt, which previously experienced one of the continent’s highest inflation rates at 34.6% in 2023, managed to reduce it to 25.5% in 2024.
• Morocco recorded the most remarkable improvement, with inflation plummeting from 4.3% to just 0.7% during the same period.
• Other economies such as Algeria, Ethiopia, Kenya, and Tanzania also posted notable declines, highlighting their ability to stabilize prices despite global economic headwinds.

In contrast, Nigeria and Angola emerged as exceptions, with both countries experiencing significant inflationary surges. Angola saw its inflation rate rise from 18.19% in December 2023 to 28.41% in December 2024, though it remained below Nigeria’s figure.

Factors Driving Nigeria’s Inflation Surge

Nigeria’s persistent inflation has been attributed to a combination of domestic and external factors that continue to exacerbate the country’s economic vulnerabilities.

Volatile Exchange Rates

One of the most significant contributors to Nigeria’s inflationary pressures is its unstable exchange rate. In 2024, the Nigerian naira depreciated sharply, losing approximately 62% of its value in the official market. Starting the year at ₦950/$1, the naira fell to ₦1,535/$1 by December, driving up the cost of imported goods and raw materials.

The currency’s devaluation was further compounded by speculative activities in the parallel market, creating disparities between the official and unofficial exchange rates. This volatility not only inflated import costs but also discouraged foreign investment, intensifying the strain on Nigeria’s foreign reserves.

Rising Energy Costs

The removal of fuel subsidies in 2024 significantly contributed to higher energy costs, a burden felt across all sectors of the economy. Petrol prices more than tripled following the policy shift, driving up transportation and logistics costs. As energy prices soared, businesses faced higher production costs, which were subsequently passed on to consumers in the form of increased prices for goods and services.

Supply Chain Disruptions

Frequent disruptions in Nigeria’s supply chains, often caused by insecurity, poor infrastructure, and inefficiencies at ports, further exacerbated the inflation problem. Agricultural producers and manufacturers faced challenges in getting their products to market, leading to shortages and elevated prices.

Monetary Policy Adjustments

In response to rising inflation, the Central Bank of Nigeria (CBN) implemented six consecutive interest rate hikes in 2024, with the aim of curbing inflationary pressures. While these measures were intended to tighten liquidity and stabilize prices, their effects are expected to take several months to materialize.

Impact on Households and Businesses

The economic realities of high inflation have taken a toll on Nigerian households and businesses. Disposable incomes have been significantly eroded, leaving many families struggling to afford basic necessities such as food, fuel, and healthcare. The National Bureau of Statistics reported that food inflation rose by 5.91% year-on-year in December 2024, further straining household budgets.

Businesses, particularly small and medium-sized enterprises (SMEs), have faced rising operational costs due to higher import prices, energy costs, and interest rates. Many have been forced to reduce staff, cut production, or pass on costs to consumers, creating a cycle of economic hardship.

Regional and Global Context

Nigeria’s inflationary woes stand in sharp contrast to global trends, where many economies have managed to stabilize prices following post-pandemic disruptions. In Africa, countries such as Ghana, Morocco, and South Africa have demonstrated that proactive fiscal and monetary policies can yield positive outcomes.

• Ghana: Despite grappling with economic challenges, Ghana successfully reduced its inflation rate from 26.4% in December 2023 to 23% in December 2024.
• Morocco: The country’s 0.7% inflation rate reflects its effective policy mix, including subsidies for essential goods and sound monetary policy.

These examples highlight the potential for targeted interventions to stabilize economies, even in the face of external pressures such as rising global interest rates and volatile commodity prices.

Policy Recommendations and Way Forward

Addressing Nigeria’s inflation crisis requires a comprehensive approach that tackles both immediate and structural challenges.

1. Exchange Rate Stabilization: The government must implement policies to stabilize the naira, including boosting foreign exchange reserves through export diversification and improving transparency in the foreign exchange market.
2. Energy Sector Reforms: Investments in renewable energy and infrastructure development can help reduce reliance on imported fuel and mitigate the impact of high energy costs.
3. Agricultural Support: Enhancing agricultural productivity through subsidies, mechanization, and improved supply chain infrastructure can address food inflation and strengthen food security.
4. Monetary Policy Coordination: The CBN must work closely with fiscal policymakers to ensure that interest rate adjustments are complemented by measures to stimulate economic growth.
5. Social Safety Nets: Expanding social protection programs can help cushion the impact of inflation on vulnerable populations, ensuring that basic needs are met.

Outlook for 2025 and Beyond

While the inflation outlook for Nigeria remains challenging, there are opportunities for recovery and growth. The government’s ongoing economic reforms, including efforts to attract foreign investment and diversify the economy, could lay the groundwork for long-term stability.

However, achieving these goals will require strong political will, coordinated policy efforts, and sustained commitment to addressing structural weaknesses. As Nigeria navigates this critical period, the stakes remain high for its citizens, businesses, and policymakers alike.

In conclusion, Nigeria’s record-high inflation rate serves as a stark reminder of the urgent need for transformative policies and strategic investments. By addressing the root causes of inflation and fostering a more resilient economy, Nigeria can unlock its potential as a regional economic powerhouse and improve the livelihoods of its people.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

17^th January, 2024