Nigeria is facing a potential surge in inflation as the country's money supply (M3) reached an unprecedented N101.34 trillion in June 2024, according to recent data from the Central Bank of Nigeria (CBN).
This marks an increase from the N99.23 trillion reported in May 2024, despite ongoing monetary tightening efforts by the CBN.
The rapid rise in money supply has raised concerns among economists and policymakers.
"With a 1 percent increase in money supply, inflation can spike by 152 percent," noted a financial analyst.
This relationship shows the critical impact of monetary policy on the economy.
Several factors contribute to the increasing money supply in Nigeria.
Financial liberalization, currency ratio adjustments, required reserve ratios, and high-powered money are all pivotal in determining the money supply.
Additionally, external factors such as the war in Ukraine have exacerbated inflationary pressures by driving up food prices, particularly for wheat and fertilizers imported from Russia and Ukraine.
The implications of this surge in money supply are far-reaching. As more money chases the same amount of goods and services, prices are likely to rise, diminishing the purchasing power of the naira.
This scenario could lead to higher costs of living for Nigerians, further straining household budgets.
In response to these developments, experts are calling for a balanced approach to monetary policy.
"It's crucial to manage the money supply carefully to avoid runaway inflation," advised an economist.
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