Energy costs threaten Nigeria’s disinflation as monthly inflation

Rising energy costs threaten to undermine Nigeria’s recent progress in curbing inflation, with the Rising energy costs threaten to undermine Nigeria’s recent progress in curbing inflation, with the Centre for the Promotion of Private Enterprise (CPPE) warning warning that renewed pressure from petrol, diesel and gas prices could reverse the decline in consumer prices.

The warning comes as headline inflation eased to 14.63 per cent in September from 15.39 per cent in August, but monthly energy inflation accelerated sharply to 5.38 per cent from 0.36 per cent, an increase of 5.02 percentage points.

In a policy brief on the September inflation report released by the National Bureau of Statistics (NBS), the CPPE described the surge in monthly energy inflation as a major threat to the disinflationary trend, given the role of energy in production, transportation and distribution across the economy.

The organisation said higher energy prices could raise operating costs for manufacturers, farmers, transport operators and retailers, eventually feeding into food prices and underlying inflation.

The pressure is particularly significant for an economy where businesses already contend with expensive electricity, logistics and financing. Any sustained increase in fuel and energy costs could weaken the relief businesses and households are beginning to experience from slower inflation.

Energy shock threatens price stability.

The CPPE linked the renewed pressure to geopolitical tensions in the Middle East, which have heightened volatility in international petroleum markets and exposed Nigeria to external energy-price shocks.

It cautioned that relative stability in the foreign exchange market, while helpful in moderating imported inflation, would not be sufficient to offset sustained increases in global energy prices.

“The policy priority should therefore be to strengthen domestic energy resilience through reliable electricity supply, expansion of CNG infrastructure, greater adoption of electric mobility and improved domestic refining efficiency,” the policy brief said.

The group argued that lasting price stability would depend partly on reducing the economy’s exposure to expensive and volatile energy supplies.

Falling inflation offers limited relief.

Beyond the decline in headline inflation, core inflation eased to 12.95 per cent in September from 13.29 per cent in August, while monthly headline inflation slowed to 0.06 per cent from 0.71 per cent.

Monthly food inflation also turned negative at 1.55 per cent, providing some immediate relief to consumers.

The CPPE attributed part of the improvement to relative exchange rate stability, which has helped moderate imported inflation and improved planning for businesses.

However, it warned that slower inflation does not necessarily mean prices have fallen or that the cost of doing business is declining. Businesses and households may continue to face high prices even as the rate of increase moderates.

The report also identified a potential warning in monthly core inflation, which rose to 1.11 per cent in September from negative 0.06 per cent in August, despite the decline in its annual rate. The divergence suggests that underlying price pressures remain a concern.

Rate cuts must be matched with supply reform.s

The CPPE said the moderation in headline inflation strengthens the case for further monetary easing, noting that high borrowing costs continue to constrain manufacturing, agriculture, construction, distributive trade and micro, small and medium-sized enterprises.

It nevertheless urged policymakers to balance any reduction in interest rates against inflation expectations, foreign exchange conditions and the risk of renewed energy-price increases.

The organisation also called for measures to improve food affordability by addressing insecurity, weak agricultural productivity, post-harvest losses and distribution costs.

It urged the government to accelerate electricity-sector reforms, expand compressed natural gas infrastructure and alternative energy options, and promote more competitive domestic petroleum markets.

The September figures underline the risk facing Nigeria’s economic recovery: monetary easing could reduce financing costs, but without more reliable and affordable energy, businesses may struggle to translate lower inflation into higher production, investment and employment.