Will Nigeria’s inflation taper near-term?

As the year draws to a close, Nigeria is facing crucial economic decisions amidst a backdrop of inflationary pressures and growth projections. The Central Bank of Nigeria's Monetary Policy Committee has hinted at the possible onset of an easing cycle as the country navigates a disinflationary trend. Will Nigeria meet its inflation targets in the near term? Esili Eigbe, Director at ESCAP Management, shared insights on Nigeria's inflation trajectory in a recent interview with CNBC Africa. As the discussion delved into expectations for 2025, analysts predict that November's inflation figures could maintain an upward trajectory, potentially reaching around 34.4% year-on-year. The recent hike in fuel prices is anticipated to continue exerting upward pressure on inflation, with the peak expected towards the end of the year. Looking ahead to the coming year, projections vary among analysts, with some forecasting stubbornly high inflation rates in 2025 - ranging from 31.8% to 34.5%. However, amidst differing views, there remains optimism that inflation will gradually recede, with estimations hinting at a decrease to around 20% year-on-year in 2025. This anticipated decline is attributed to factors such as the stabilization of fuel prices' impact and potential currency stability. The success of managing inflation hinges on a coherent monetary and fiscal approach. The Central Bank's vigilant stance is crucial in curbing inflationary pressures, with suggestions for potential adjustments to the policy rate to align with evolving economic conditions. Despite expectations for a tapering inflation trend from early 2025, concerns linger over Nigeria's expansive fiscal budget. The proposed budget's substantial size and expenditure plans pose inflation risks, echoing concerns raised by economists like Milton Friedman. Striking a balance between addressing infrastructure needs and controlling inflation is a delicate task for fiscal authorities. One proposed strategy involves leveraging the private sector's involvement to drive infrastructure development, offering potential avenues for sustainable growth and inflation management. While infrastructure remains vital for economic progress, a prudent allocation of resources, including tax incentives and promoting private investments, can foster a more efficient and balanced economic landscape. In tandem with inflation considerations, GDP growth forecasts for Nigeria present a nuanced picture. Projections suggest a modest growth rate of around 3 to 3.5% year-on-year in the first two quarters of 2025, supported by resilient service sectors and improving oil output. The services industry is expected to remain a key driver of growth, while the energy sector, particularly oil, could also contribute significantly to economic expansion. Overall, a multifaceted approach encompassing monetary policy adjustments, prudent fiscal measures, and strategic private sector engagement is essential for steering Nigeria toward stable inflation levels and sustained economic growth in the coming year.