Close button
The Guardian
Email YouTube Facebook Instagram Twitter WhatsApp

‘How government can stem inflationary trend, encourage real sector borrowing’


A paper mill.

With consumer prices expected to remain high in the course of the year, as a result of impacts from increased value added tax (VAT), as well as high food prices, the Lagos Chamber of Commerce and Industry (LCCI), has asked the Federal and State governments to address infrastructural challenges and security concerns in food-producing areas in the country.

According to the chamber, policy makers need to worry about the increasingly intense inflationary conditions, especially the food component of inflation, adding that rising inflation has a profound welfare effect on citizens as it weakens purchasing power.

“We note the sustained uptick in headline inflation since September 2019. According to the National Bureau of Statistics, inflation rose to 11.98 percent in December. This marks the fourth consecutive month of rising inflation. Both food and core inflation accelerated to 14.67 percent and 9.33 percent respectively in December.


“Heightened food inflation naturally escalates poverty conditions as food is basic to human existence. Intense inflationary pressures also have a negative impact on investment as cost of production and business operations increases. This typically takes a toll on profit margins as sales and turnover declines”, the chamber’s President, Toki Mabogunje explained.

The LCCI however noted that government can stem rising consumer prices through increased investment in infrastructure especially power and transportation, adding that this would help to bridge supply gaps and reduce transportation costs.

Similarly, the chamber stressed the need to address the security concerns in major food-producing areas of the country.

LCCI’s Director-General, Dr. Muda Yusuf in his comments on the outcome of the Monetary Policy Committee meeting, said Central Bank of Nigeria’s tightening position which resulted in the upward review of the Cash Reserve Requirement [CRR] from 22.5% to 27.5% will impact the economy in many ways, especially the reversal of the current downward trend in interest rate.

According to him, the drop in interest rate trend was beginning to impact positively on the economy, especially the real sector.

“A high interest trajectory [which the tightening policy portends] will impact negatively on investment growth especially in the real economy. The prospects for increased job creation may be further dimmed.

“We believe that what the economy needs at this time are policy actions aimed at stimulating investment to boost output, create jobs and ultimately moderate inflation. Monetary policy tightening will negate the realization of these objectives.

“It is pertinent for us to prioritize domestic investment growth and foreign direct investment (FDIs) over foreign portfolio investment (FPIs). Persistent focus on portfolio flows would continue to propel the Central Bank of Nigeria to keep interest rates high. This is inimical to investment growth and job creation endeavours”, he added.

On the argument that the recent hike in CRR will help moderate inflation, he contends that food inflation is the bigger issue that needs to be dealt with in the inflation equation.

“We believe that food inflation is not driven by liquidity nor is it a monetary phenomenon. The continuous uptrend in inflation is driven largely by cost-push factors rather than demand-pull factors. Against this backdrop, the way forward lies in fixing the structural problems fuelling
inflationary pressure as monetary policy instruments will have almost no impact in moderating inflation”, he added.

On the business environment, the chamber note that many businesses are struggling to survive on the back of multiplicity of levies, infrastructure challenge, sluggish growth, excessive regulation, high cost of credit and government policies.

“Considering the role of business in the economy, we advise government to vigorously implement friendly policies to support expansion of businesses”, it added.


Receive News Alerts on Whatsapp: +2348136370421

No comments yet