Nigerian Naira Strengthening, Inflation Soars, & NSE ASI Index Flat

Despite the strengthening of the Nigerian naira in recent weeks, the inflation in Africa’s largest economy is only gaining momentum. The National Bureau of Statistics reported an alarming increase in March’s inflation rate at 33.2 percent, rising from the 31.7 percent seen in February.

Economists argue that the spike in inflation does not correlate with the naira's recent appreciation, which began approximately three weeks ago. According to Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), the inflation figures will not instantly mirror the naira's gains due to the underlying persistent economic challenges.

Nigerians are grappling with price hikes at levels not seen in 28 years, signalling a severe cost-of-living crisis and rapidly diminishing purchasing power across the populace. This is set against the backdrop of a startling 40 percent rise in food inflation in March, contributing about half of the overall inflation rate and marking the highest ever recorded in the nation's history.

The food inflation surge is pivotal as it underscores a more fundamental hardship faced by households who spend a substantial portion of their income on food, thus severely impacting their overall standard of living and economic stability.

In response to the rampant inflation, the Central Bank of Nigeria (CBN), helmed by Olayemi Cardoso, has taken a stringent approach. In an attempt to curb inflation's race to the top, it raised the benchmark interest rate by 200 basis points, taking it up to 24.75% in the months of February and March.

However, there's a broader scope to the issue afflicting not just Nigeria but the entire Sub-Saharan African region. The International Monetary Fund (IMF) has pointed out a pressing concern over the low levels of market competition within these countries.

The lack of a competitive environment empowers firms to adjust prices upward with little restraint, particularly when demand exceeds supply, thereby fuelling higher inflation rates negatively impacting economic growth and consumer welfare.

Stocks in Nigeria, using the NSE All Share Index as a guide have had a rather tepid last 3 months. After starting 2024 on a high note, the Index reverts back close to 100,000 and levels seen in mid January.

As the Nigerian government and central bank combat these multidimensional economic woes, the citizens continue to tread through the mire of soaring prices, underscoring the urgent need for comprehensive and sustained economic reforms.