Nigeria’s headline inflation hits 48-month high in March

Nigeria’s headline inflation has reached a 48-month high of 18.17 percent in the month of March, compared to the 17.33 percent recorded in February. Analysts at Financial Derivatives attribute this surge to higher energy costs and security challenges in the food-producing regions of the country. Shay Omidiora, Financial Advisory Associate at FDC, shed light on the factors driving this inflationary pressure during a recent interview on CNBC Africa. Over the past 19 months, there has been a consistent upward trend in headline inflation, primarily fueled by food inflation, which accounts for over half of Nigeria's Consumer Price Index (CPI) basket. The insecurity in the North and North Central regions, where a significant portion of the country's food is produced, has disrupted farming activities, leading to supply shortages and subsequent price hikes. Additionally, the excessive money supply, attributed to the central bank's lending to the federal government for unproductive projects, has further exacerbated the inflationary environment. Omidiora highlighted that the ongoing planting season may not provide immediate relief, as there tends to be a supply gap during this period, keeping food prices elevated. The resolution of fundamental issues like insecurity in food-producing areas is crucial for a potential reversal in food inflation, expected by the third quarter when the harvest season could boost food supply. The impact of this high inflation is palpable for households, with a reduction in disposable income leading to shifts in consumer behavior and loyalty in purchasing decisions. Lower-income segments are particularly affected, as they navigate affordability challenges by prioritizing essential goods over discretionary spending. Manufacturers are grappling with rising production and logistics costs, as the inflationary environment erodes their profit margins. The unfavorable economic conditions have also resulted in increased capital outflows, as investors seek more stable markets amidst the inflationary pressures.