Interest rates to slow as inflation falls to 6-month low

The country’s annual inflation rate fell to a six-month low in August, offering policymakers a window to halt an unprecedented tightening cycle when they meet next week.

Consumer prices rose 32.2 per cent from 33.4 per cent in July, the National Bureau of Statistics said in a statement published on its website on Monday. That matched the median estimate of nine economists in a Bloomberg survey.

The receding impact on prices of a currency devaluation and the temporary removal of fuel subsidies instituted a year contributed to the slowdown. The measures formed part of reforms introduced by President Bola Tinubu after he entered office in May 2023 to attract investors, float the currency and ease budget pressures.

Higher corn yields and a six-month window to import the crop and wheat duty free also contributed to the softening in price increases.

Data collection was concluded before mid-August, so the effect of a 45 per cent increase in gasoline prices in early September, which saw a bump in transport costs, was not captured.

The slowdown raises the prospect that policymakers will pause a tightening cycle that’s lifted the benchmark rate to 26.75 per cent from 11.5 per cent in just over two years. It will also give the monetary policy committee, which will announce its decision on September 24, time to assess the impact of recent currency volatility, devastating floods in northeastern Nigeria and the increase in gasoline prices on inflation.

Food inflation slowed to 37.5 per cent in August from 39.5 per cent a month earlier. Core price growth, which excludes agricultural produce and energy, quickened to 27.6 per cent from 27.5 per cent.

While the dip offers some relief, analysts warn that rising food and core inflation continue to weigh heavily on household finances.

Economist Emmanuel Akpan views the decline as “a positive sign,” attributing the moderation to temporary factors, such as the recent stabilization in fuel prices.

However, he expressed concern over the sustainability of the trend, particularly with food inflation soaring at 37.52 per cent. “This affects the purchasing power of the average Nigerian,” Akpan added, emphasizing that despite the decline in headline inflation, the outlook remains grim for many families.

Financial analyst Tola Adeyemi pointed out that rent, bus fares, and medical consultation fees have surged, driving core inflation higher. “There’s still underlying pressure on rent, transportation, and medical services that could push inflation up again,” Adeyemi said.