Money supply hits historic high in Nigeria, sparking Inflation worries

Nigeria’s inflation could worsen as the country’s money supply (M3), measuring the total amount of money in the economy, reached an all-time high of N101.34 trillion in June 2024, according to recent data from the Central Bank of Nigeria (CBN).

The data indicates that M3 increased by 56.15 percent, rising from N64.90 trillion in June 2023 to N101.34 trillion in June 2024. Financial analysts suggest that an increase in the money supply can lead to higher inflation.

On a month-on-month basis, the money supply grew by 2.11 percent, up from N99.23 trillion in May 2024.

This rise in M3 occurred despite the CBN’s efforts at monetary tightening. Since Olayemi Cardoso took over as governor in September last year, the CBN has issued over N1.5 trillion in Open Market Operation (OMO) bills to curb inflation and strengthen the Naira.

As of June 2024, Nigeria’s core and food inflation rates were 34.19 percent and 40.87 percent, respectively, with interest rates at 26.75 percent.

Analysts at FBNQuest commented on the M3 data, stating, “While the increase in CIC 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.”

Furthermore, the National Assembly recently raised the Nigerian government’s ways and means advance threshold from 5 percent to 10 percent. As of June 2024, Nigeria’s currency in circulation (CIC) rose to N4.05 trillion, up from N2.60 trillion in the same period last year.