Inflation Threatens to Escalate as Nigeria's Money Supply Hits Record N101.34 Trillion

 

Nigeria is facing an increased risk of inflation as the nation's money supply (M3) surged to a record high of N101.34 trillion in June 2024. This significant increase, reported by the Central Bank of Nigeria (CBN), marks a 56.15% rise from N64.90 trillion in June 2023.

Key Data Points:

• Current Money Supply (M3): N101.34 trillion (June 2024)
• Previous Year Money Supply: N64.90 trillion (June 2023)
• Month-on-Month Increase: 2.11% (from N99.23 trillion in May 2024)

Analysis by Financial Experts

Financial analysts caution that a rising money supply often correlates with higher inflation rates. Despite the CBN's efforts to control inflation through monetary tightening, the substantial increase in M3 signals potential inflationary pressures ahead.

CBN's Monetary Policies

Since Olayemi Cardoso assumed the role of CBN governor in September last year, the bank has issued over N1.5 trillion in Open Market Operation (OMO) bills. This strategy aims to curb inflation and bolster the Naira. However, the latest M3 figures suggest that these measures may not be sufficient to counteract the inflationary trends.

Current Economic Indicators

• Core Inflation: 34.19% (June 2024)
• Food Inflation: 40.87% (June 2024)
• Interest Rates: 26.75%

Analysts at FBNQuest commented on the M3 data, stating, “While the increase in CIC (Currency in Circulation) may suggest improved economic activity in nominal terms and higher consumer spending, it also highlights the risk of inflation, particularly if money supply growth exceeds real output growth.”

Legislative Developments

The National Assembly recently approved an increase in the Nigerian government's ways and means advance threshold, raising it to 10% from 5%. This change could further impact the country's inflation dynamics.

Currency in Circulation (CIC)

As of June 2024, Nigeria's currency in circulation rose to N4.05 trillion, up from N2.60 trillion in the same period last year. This increase in CIC underscores the broader expansion of the money supply within the economy.

Conclusion

The unprecedented rise in Nigeria's money supply poses a significant risk of exacerbating inflation. As the CBN and government navigate these economic challenges, the focus remains on balancing monetary policies to stabilize the Naira and control inflation.