Nigeria’s moderating inflation and issues overhang
Just yesterday, the National Bureau of Statistics (NBS) affirmed that yearly inflation in Nigeria stood at 11.02 per cent in August. This is the lowest figure in nearly four years, especially in the midst of the battle against recession and fiscal crisis. In July, the inflation number settled at 11.08 per cent in July.
The inflation numbers have averagely been on the steady decline since May, after a back and forth movement in previous months. While respite has been recorded successfully across other indices at various months, the food index has defied efforts.
Fortunately, food prices, which make up the bulk of the inflation basket, dropped to 13.17 per cent in August from 13.39 per cent a month earlier.
Notwithstanding, the current inflation rate not only points to improving economic environment, but a renewed hope for the central bank to loosen interest rates at its rate setting meeting, probably next week.
The price index reached a high of 18.7 percent in January 2018, but remained double digits for the last three years.
In March this year, the apex bank cut the benchmark interest rate to 13.5 per cent from 14 per cent, in a move that took analysts by surprise, as part of an attempt to stimulate growth and signal a new direction.
CBN Governor, Godwin Emefiele, has not minced words in declaring intentions to maintain tight monetary position in 2019, as he sees inflation rising to 12 per cent this year, before any moderation.
Nigeria’s inflation rate recorded a second consecutive increase to 11.40 per cent in May 2019, riding on unabating increase in food prices across the country.
The composite food index rose by 13.79 per cent in May 2019, compared to 13.70 per cent in April 2019, led by increases in prices of meat, oils and fats, bread and cereals, potatoes, yam and other tubers, fish, milk, cheese and egg, and vegetables.
The development, despite seasonal factors, like farming period, is made worse by the recurring insecurity in the nation’s food belts, which had earlier affected planting and quality of harvests.
The nation’s north central and north east states are agrarian centres, that produce most of the staple foods consumed in the country, which prices have continued to soar, spiking inflation rates on monthly basis. Certainly, this has contributed in no small measure to keeping the inflation rate high.
The research analyst at FXTM, Lukman Otunuga, said the development had heightened concerns then, given the current weak oil prices, the imminent policy meeting of the Federal Reserve Bank and ongoing trade tensions.
“The latest inflation figures may fuel concerns over pressures creeping back into the economy. Should consumer prices continue to accelerate in the coming months, this could force CBN to maintain status quo on interest rate,” he said.
Ayodele Akinwunmi of the FSDH Merchant Bank Limited, said the development was in line with the historical trend, driven by the commencement of raining and planting season. Also, “the rising security challenges in the country has added to the escalating food prices.
The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, had told The Guardian that the rising inflation era may be sustained for couple of months, given that the implementation of the minimum wage would soon start, which will have additional pressure on inflation.
“What the economy needs in the immediate are activities that would increase employment and creation of wealth, not obstructions and uncertainties,” he said.
The country’s monetary authority, in a bid to take hold of the price stability, has kept all it rates steady, at least, for the past 25 months, involving 12 bi-monthly sessions, specifically for purposes that run around inflation.
Granted, inflation was not all in the menu of the policymakers. As they met during those sessions, none of the other variables- exchange rate, interest rate and the prudential ratios of the banks, among others, discussed therein, was pruned of their natural link with the same subject.
At a certain point, the nature of the nation’s inflation, in some quarters, was described as stagflation, due to its persistent rise that was combined with high unemployment and stagnant demand in the economy. No nation has desired such level of inflation, as it does not aide a positive redistribution of income, but brings about weak purchasing power and extended inequality.
For the past 20 months, the good news is that the “monster” has been on the downward trend month-on-month, with the latest report 11.02 per cent.
The emerging market economies have been the victim of the ugly economic development, facilitated by low and near non-existence of diversification, in the wake of global commodity shock.
For Nigeria, the inflation, then, rode on the back of importations that were facilitated with high exchange rate, given the shortage of foreign currency supply, against huge demand and the country’s insistence on “no devaluation” option. But worse still, almost all the country’s food supplies were imported.
“If people cannot go to their farms, it is going to be a problem. And by the way, agriculture is not just crops. When you destroy farmland or livestock, it affects crops and livestock. And agriculture is the biggest part of our GDP, so, it has a way of slowing down economic activity,” the Statistician-General, National Bureau of Statistics, Dr. Yemi Kale, once noted.
A research by FSDH Merchant Bank Limited, also raised the alarm that the good work so far achieved, may be subjected to aggravated inflation numbers and make Nigeria lose out on its targeted single digit inflation rate. The challenge, according to the research, stems from the prevailing crisis in the food producing states in Nigeria, which has sustained upward pressure on food prices.
Akinwunmi, added: “The fact that food index is one of the three major drivers of inflation in the country, with the crisis-induced pressure in food producing states, there is a major risk to the achievement of a single digit inflation rate in 2018.
“Banks do not extend credit for its sake, because funding is not totally the challenge, but the viability of the business. No one goes where crisis is rife. Of course, uncertainty is the chief enemy of investments,” he said.
He also called for additional fiscal measures to improve the ease of doing business in the country, which would lead to a further expansion in the manufacturing and productive activities, as well as the enthronement of cheap loan regime.
To reach the goal of reign on inflation, there is now need to tame the endless violence in the agriculture areas of the country, raise the level of the country’s export profile, as cushion to any eventual oil shock, deepen the diversification efforts and manage flow of election spending against the consequent demand pull inflation.