By Chinwendu Obienyi

The stability of the naira, reportedly contributed to a significant reduction in imported inflation, bringing it to a five-year low, analysts at FBNQuest said.

This is coming after headline inflation continued its upward trajectory in December 2024, rising for the fourth straight time to 34.8% but the momentum of increase has now moderated for the second consecutive month, highlighting the impact of CBN’s sustained tight monetary policy.

This indicates that the consistent value of the Naira helped minimize the cost of foreign goods and services, which can fluctuate with currency volatility.

The analysts indicated that the relative stability of the naira in December and the introduction of the 150-day window import duty waiver on key staples by the federal government slowed imported food inflation to its lowest since September 2019.

“Although its impact on the headline reading is less pronounced, imported inflation moderated to 41.29% year-on-year, from 42.29% in the previous month, marking its first pause since September 2019.

This development could reflect policy measures aimed at exchange rate stability, increased foreign reserves, or controlled inflationary pressures. Such trends are important for Nigeria, a country reliant on imported goods, as it helps improve economic confidence and purchasing power”, they said.

A stable exchange rate generally ensures that import prices remain predictable, benefiting businesses and consumers by reducing the pressure of price hikes.

The naira’s volatility is gradually being subdued by the transparency and efficiency in the market, occasioned by the Electronic Foreign Exchange Matching System (EFEMS) launched in December last year.

As a result, the Naira appreciated by N125 to a dollar one month after the EFEMS was adopted, with analysts saying the gains might be an indication that the naira’s rebound journey might just have begun.

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It will be recalled that the FG had  announced a series of measures to curb food inflation which has been rising at its fastest pace in three decades in a country where almost half of its more than 200 million people live in extreme poverty.

However, despite the government’s good intentions, the import duty waiver ultimately proved to be a failed initiative, failing to yield the expected results as the six-month period drew to a close on December 31st, 2024.

But a consignment of 32,000 tons of rice — the first in a decade — arrived in Lagos from Thailand under the tariff moratorium in boost for food supply.

While imported food prices are cooling, food inflation is also declining. Data from the National Bureau of Statistics (NBS) showed that food inflation eased to 39.84% compared with the 39.93% in November.

According to the NBS, price decreases recorded in bread and cereals, soft drinks, local beer, potatoes, yams, tobacco, and other tubers were responsible for the reduction in food prices.

The NBS is set to complete the rebasing of Nigeria’s Consumer Price Index (CPI) by the end of January 2025, marking a significant shift in the computation of analysing changes in price trends of goods and services.

The revised inflation methodology proposes a new base year of 2024 compared with the current base price year of 2009.

While price levels remain significantly elevated, the proposed re-weighting of inflationary components of the CPI inflation basket, such as food prices, electricity, gas, and other fuels, is likely to result in lesser impact on Nigeria’s overall headline reading.

As expected, the outlook for inflation looks pessimistic, however analysts expect inflation to cool in January 2025 on the back of high base effect, naira stability and lower petrol prices.