Professional services firm, PricewaterhouseCoopers (PwC Nigeria), has projected that Nigeria’s headline inflation may decline marginally to 21 percent in 2024.

PwC, in its latest Nigeria Economic Outlook, released last week, said headline inflation rose steadily from January to December 2023, reaching an 18-year peak of 28.92 percent in December, from 28.2 percent in November 2023.

On a Year-on-Year (Y-o-Y) basis, PwC said the inflation rate increased by 7.58 percent points when compared to the December 2022 inflation rate of 21.34 percent.

“The rise in inflation was fueled by food (33.9 percent) and transportation inflation (26.7 percent).

“The aggregate drivers of inflation in Nigeria include naira devaluation, increased food prices, high import bill, rising energy and logistic costs,” PwC said.

The PwC report, which highlights the seven key trends that will shape the nation’s economic trajectory in 2024, however, said “We project that headline inflation may decline marginally to 21 percent in 2024.”

The report was authored by PwC Nigeria’s Partner and West Africa Lead, Olusegun Zaccheaus; Lead Economist and Researcher, Omomia Omosomi; and Senior Economist & Researcher, Adesola Borokini.

The team of experts stated that the inflationary pressure in 2024 may be driven by a combination of the pass-through effect of the rise in international oil prices on domestic energy costs and exchange rate pressures.

The report said, for instance, that while the U.S Energy Information Administration (EIA) forecasts that the average international oil price may be $93.24/b in 2024, Standard & Poors (S&P) forecast that the average official exchange rate may be ₦859.14/$ in 2024.

PwC, while pointing out that in the short-term of 2024, inflation may reduce marginally, however, said inflation will remain double-digit due to food prices, domestic energy costs, and exchange rate pressures.

These factors, according to the report, will weigh further on the purchasing power of consumers and the decisions of investors.

It, however, said inflation may experience a modest reduction in the mid-term and long-term of 2024 on the back of marginal gains from the ongoing fiscal reforms.

“Double-digit inflation will persist in 2024 but will be lower than the peak experienced in 2023,” PwC stated.

The report identified the key drivers of inflation in Nigeria to include exchange rate and food prices, noting, however, that exchange rate pressure will persist as policy authorities implement actions to drive price stability.

It also said the food inflation rate in November 2023 was 32.84 percent Y-on-Y, which was 8.72 percent points higher than the rate recorded in November 2022 (24.13 percent).

For instance, in November 2023, the average price of 1kg of rice, brown beans, and tomato increased by 73 percent, 45 percent, and 67 percent, respectively, compared to November 2022.

“The Food and Agriculture Organisation (FAO) projects that Nigeria may experience increased prices of staple foods such as rice, maize, cereals, etc. in 2024.

“The inflationary trend of 2024 is vested on the exchange rates, food prices, import bill, energy and logistic prices,” the report said.

On a Y-on-Y basis, average transport rose by 64.44 percent from N637.10 in November 2022 to N1,047. 63 in November 2023.

Also, the average retail price per liter of petrol increased by over 200 percent from N202. 48 in November 2022 to N648. 93 in November 2023.

“The rise of energy and logistics costs stemmed from the discontinuation of fuel subsidy, higher international oil prices, and naira devaluation against the US dollar,” PwC said.

It stated that the upward inflationary trend in Nigeria persisted despite the Central Bank of Nigeria (CBN) implementing several measures throughout the year.

These measures include raising the Monetary Policy Rate (MPR) on four occasions, increasing the Cash Reserve Ratio to 32.5 percent, issuing Open Market Operation (OMO) bills to mop up excess liquidity, and lifting the cap on the Standing Deposit Facility (SDF) from a daily maximum limit of ₦2 billion.

The CBN reported that Cash in Circulation (CIC) increased by 92 percent to ₦3.35 trillion in November 2023 compared to October 2022. This rise is due to the lingering effect of the naira crunch and the resulting impact on businesses and households.

“The surge in CIC limits the effectiveness of the CBN monetary policy instruments in cooling inflation,” PwC said, noting that apart from money supply, inflation is driven by other factors.

According to the report, these factors are structural and include a rise in energy prices, food insecurity, and exchange rate devaluation, among other factors.

The report, however, said “Finding coherence and alignment between fiscal and monetary policy to stabilize prices may enable the achievement of statutory and policy targets in 2024.No 2