Hike In MPR Looms As Inflationary Pressure Lingers

As Nigerians continue to grapple under a high inflationary economy, they are yet to get succour as the rate at which prices of goods and services rise is expected to continue to rise over the next six months, with analysts predicting a 34.7 per cent inflation rate for the month of November.

Latest data released by the National Bureau of Statistics (NBS) puts the inflation rate for October at 33.88 per cent up from 32.7 per cent in September. The latest figure, which is a four-month high, reflects rising food prices, surging energy costs, supply chain disruptions in agriculture, and ongoing foreign exchange volatility.
Prices have continued to rise despite the Central Bank of Nigeria’s (CBN) interest rate hikes and the government’s zero-duty import policy.

At the last Monetary Policy Committee meeting, the CBN had maintained a tightening stance raising the Monetary Policy Rate (MPR) by 50 basis points to 27.25 per cent from 26.75 per cent in response to the continued inflationary conditions in the economy.

While it retained the asymmetric corridor around the MPR at +500/-100 basis points and the Liquidity Ratio (LR) at 30 per cent, it increased the Cash Reserve Ratio (CRR) of deposit money banks (DMBs) by 500 basis points to 50 percent from 45 per cent and that of Merchant Banks (MBs) by 200 basis points to 16 per cent from 14 per cent. In total, the CBN under Olayemi Cardoso had increased the benchmark interest rate by 8.5 per cent under the current leadership of the apex bank.

Despite the typical boost from the October harvest season, food inflation demonstrated persistent pressure climbing by 139 basis points to 39.16 per cent year on year as against 37.77 per cent in September.
Food inflation also surged by 30 basis points to 2.94 per cent month on month compared to 2.264 per cent in September, resulting in a 39.16 per cent year on year print. Analysts note that the rising food inflation reflects persistent structural challenges undermining the agricultural sector’s productivity.

According to analysts at Cordros Research, key factors affecting rising food inflation include widespread flooding disrupting farming activities, the ongoing conflict in the Northern region limiting agricultural operations, and rising input costs constraining harvest yields below historical averages, all of which have kept agricultural food prices elevated.

Additionally, the persistent currency depreciation maintained upward pressure on imported food prices, while increased transportation costs – a direct consequence of higher Premium Motor Spirit (PMS) prices – inflated retail food prices across the board.

The data released by the NBS showed that October’s m/m food inflation significantly exceeded the five-year October average of 1.47 per cent, underscoring the unusual intensity of current price pressures. Across sub-items, prices rose for Farm Produce and Processed food, while Imported food prices saw a slight decline to 3.37 per cent m/m.

Noting that the main harvest period typically spans September through December across both the Northern and Southern regions, analysts at Cordros reflected on a recent report from the Farming Early Warning System Network (FEWSNET) which suggests an impending deterioration in food security from November 2024 through May 2025, driven primarily by suboptimal harvest yields.
The analysts noted that this, “combined with persistent naira volatility and festive-driven consumer demand, is expected to sustain price pressures on both locally produced and imported food items. As a result, we expect food inflation to print 3.04 per cent month on month in November, leading to a further increase of 160 bps in the year-on-year numbers to 40.83 per cent. At the same time, prices within the core basket are poised to remain elevated, reflecting the combined effect of naira depreciation, elevated costs of energy, increased transport expenses and high operational costs. Consequently, we project core inflation to increase by 2.16 per cent m/m, cascading to 28.17 per cent y/y.
While noting that the upward trajectory of the headline index aligns with CBN’s recent inflation expectation survey, which highlights households’ and businesses’ belief that inflation will continue to rise in the next three to six months, analysts at Cowry Assets Management Limited project a further rise in inflation to 34.45 per cent.

In an emailed note, analysts at Cowry pointed out that “addressing Nigeria’s inflation crisis requires not only monetary adjustments but also significant structural reforms to resolve persistent bottlenecks. Infrastructure improvements, better agricultural productivity, and currency stabilisation will be crucial in achieving long-term price stability.

“Globally, inflation remains a critical concern for policymakers, prompting stringent measures to contain price surges while balancing growth considerations. In Nigeria, despite the CBN’s tight monetary stance, structural challenges, including inadequate infrastructure, high energy costs, and logistical inefficiencies, continue to hinder the efficacy of anti-inflationary policies.

“Cowry Research anticipates that inflation will climb further in November to 34.45 per cent, reflecting sustained pressures from the same factors as well as price pressures from seasonal effects across the country. Given the persistent inflationary pressures, we expect the MPC to tighten further with a potential 25 to 50 basis points increase in the MPR.

For analysts at Afrinvest West Africa, inflation in November is expected to print at 2.7 per cent m/m and 34.7 per cent y/y. “The outlook is predicated on expected frontloading of seasonal food and non-food demand ahead of the yuletide, subdued food harvest, further forex pressure as well as the impact of additional PMS price increase to around N1,060/litre around late October. Precisely, we anticipate food inflation of 39.5 per cent y/y while non-farm prices should increase by 28.7 per cent. On this basis, we project a further hike in the MPR rate by a minimum of 25bps at the final Monetary Policy Committee (MPC) meeting to be held later in November.”