Financial analysts at Meristem Research anticipate a further increase in price levels in 2024, as the underlying factors that fueled the inflationary trend in 2023 show resilience.
The analysts stated this in its Meristem 2024 Annual Outlook ‘Setting Sail for Gradual Recovery’
Several factors contribute to the expected rise
According to the analysts, several factors contribute to the expected rise in price levels in 2024 which include the persistent depreciation of the Naira, reaching a range of NGN892.80 – NGN924.94/USD in the official market during 2023, coupled with elevated PMS prices.
Others include inadequate road infrastructure, and ongoing challenges in the agricultural sector leading to expected food shortages, which are likely to exacerbate the inflationary pressures
- “We project that price levels are likely to rise further in 2024 as the factors that contributed to the upward trend in inflation during 2023 persist.
- The continued depreciation of the Naira (to a range of NGN892.80 – NGN924.94/USD in the official market) in 2023, higher PMS prices, poor road infrastructure, and continued pressure on the food index from lingering agricultural challenges and expected food shortage are factors likely to worsen price levels in 2024,” they said.
Recent positive developments offer a ray of hope
Despite these challenges, the analysts said recent positive developments offer a ray of hope.
They noted that initiatives such as securing a USD163.00 million loan from the African Development Bank to support wheat production, the Federal government’s directive to the Ministry of Agriculture to reduce input prices for farmers ahead of the planting season, and other proposed government schemes addressing food insecurity are expected to contribute to a gradual alleviation of the upward trajectory in food inflation in the mid to long term.
Moreover, the analysts project a moderation in inflation figures during the second half of 2024, attributing it to the high base effect from 2023.
Monetary policy authorities
Considering the expected trajectory of inflation in 2024, analysts expect monetary policy authorities to raise the MPR further by a maximum of 200bps.
- “We also expect more OMO auctions, which would mop up liquidity and attract foreign inflows into the economy, especially given the CBN governor’s forward guidance of likely holding only four meetings in 2024.
- Furthermore, global monetary authorities are likely to start cutting rates in the second half of 2024, thus creating an opportunity for emerging markets to attract foreign investors,” he said.
According to them, this gives the monetary authority further impetus to raise the monetary policy rate.
- “However, we expect the monetary policy committee to adopt a HOLD stance towards the end of 2024 as policy measures to cushion inflationary pressures are expected to take effect.
- Lastly, we do not foresee a shift toward a more expansionary policy rate stance (rate cuts) until 2025, barring any economic shocks that warrant otherwise,” he said.
What you should know
Nairametrics reported that in November 2023, the overall inflation rate rose to 28.20%, surpassing the October 2023 rate of 27.33%. This indicates a month-on-month increase of 0.87%.
When compared to November 2022, the year-on-year headline inflation rate was notably higher, marking an increase of 6.73% points from the 21.47% recorded in the same month the previous year.
Additionally, on a month-on-month basis, the inflation rate for November 2023 was 2.09%, showing a 0.35% increase from the October 2023 rate of 1.73%. This implies that the rate of average price level increase in November 2023 exceeded that observed in October 2023.
Food inflation
For November 2023, the year-on-year Food inflation rate stood at 32.84%, marking an increase of 8.72% points from the November 2022 rate of 24.13%.
The spike in Food inflation was driven by higher prices in categories such as Bread and Cereals, Oil and Fat, Potatoes, Yam and Other Tubers, Fish, Fruit, Meat, Vegetables, Coffee, Tea, and Cocoa.
On a month-on-month basis, the Food inflation rate for November 2023 reached 2.42%, reflecting a 0.51% increase compared to the October 2023 rate of 1.91%. The monthly increase in Food inflation was attributed to a rise in the rate of average prices for Bread and Cereals, Oil and Fat, Meat, Coffee, Tea, Cocoa, Potatoes, Yam, and Other Tubers.
