Nigeria’s Headline Inflation Increases as Central Bank Intensifies Foreign Exchange Controls

In the first month of 2024, Nigeria’s headline inflation rose from nearly one percent to 29.9%. However, on a year-on-year basis, the January 2024 headline inflation rate was 8.08 percentage points higher than the January 2023 rate. Many commentators identify foreign exchange shortages as the root cause of the naira’s poor performance against major currencies.

Depreciating Local Currency Fuels Inflation

According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rose to 29.9% in January, a slight increase from the December 2023 rate of 28.92%. On a year-to-year basis, the January 2024 headline inflation rate was 8.08 percentage points higher than that of January 2023, as shown by the latest NBS data.
As per the Nigerian statistical body, rising prices of staples like bread, cereals, edible oils, potatoes, and meat were behind the marginal increase in Nigeria’s headline inflation. Many commentators and observers of the Nigerian economy identify the weakening local currency as the primary driver of inflation.
The Nigerian currency, the naira, has been losing ground against major currencies and recently it plunged to an all-time low against the U.S. dollar. Since the ouster of former Central Bank of Nigeria (CBN) Governor Godwin Emefiele, the naira has depreciated by more than 50%. The depreciation is believed to be caused by shortages of the U.S. dollar on the formal foreign exchange market.
To help halt the naira’s continued slide, the CBN has over the past few months instituted a series of measures to preserve the scarce foreign exchange. The central bank has also introduced regulations that discourage sourcing or trading of foreign exchange on the parallel market.

Central Bank Unveils New Foreign Exchange Control Measures

To further bolster these measures, the CBN recently made changes to payment methods that authorized dealers are permitted to use when paying out personal travel allowance (PTA) or business travel allowance (BTA).
“In line with the Bank’s commitment to ensure transparency and stability in the foreign exchange market and avoid foreign exchange malpractices, all authorized dealer banks shall henceforth effect payout of PTA/BTA through electronic channels only, including debit and credit cards. For the avoidance of doubt, payment of PTA/BTA by cash is no longer permitted,” the CBN said in its Feb.14 circular.
In a separate circular issued on the same day, the Central Bank of Nigeria (CBN) announced new prerequisites for international oil companies must fulfill seeking to repatriate funds to offshore accounts. The circular said the oil companies would only get the green light to transfer funds upon meeting these new requirements.