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At 21.91%, inflation sets new high amid currency crisis

By Geoff Iyatse, Michael Akinadewo (Lagos), Collins Olayinka, Terhemba Daka, Anthony Otaru and Joseph Chibueze (Abuja)
16 March 2023   |   5:10 am
Despite contracting aggregate demand, falling purchasing power and other indicators that highlight reduced consumption and sluggish business activities, Nigeria’s headline inflation rate has reached 21.91 per cent – a height not seen in past decades.

Rise in cost of food responsible for high inflation. PHOTO: AYODELE ADENIRAN<br />

• Experts link rise to naira redesign
• Uwaleke: Using currency squeeze to tackle inflation counterproductive
• Emefiele warns African central bankers against possible bank run
• Subsidy removal: FG, states yet to conclude on palliatives ahead June deadline

Despite contracting aggregate demand, falling purchasing power and other indicators that highlight reduced consumption and sluggish business activities, Nigeria’s headline inflation rate has reached 21.91 per cent – a height not seen in past decades.

Owing to increase in the cost of food and fuel, February’s consumer price index (CPI) posted a month-on-month (m/m) change of 1.71 per cent, a slower climb when compared with the 1.87 per cent recorded in January.

The slowdown in the m/m change suggests the intensity is weakening. Economists often use month-on-month changes in price to assess the current momentum of inflation. Unlike year-on-year (y/y) change, the m/m rate isolates the trend from remote base effects.

According to the National Bureau of Statistics (NBS) latest report released yesterday, on a y/y basis, the headline inflation rate was 6.21 per cent points higher compared to the rate recorded in February 2022, which was 15.70 per cent.

This shows that the headline inflation rate y/y increased in February 2023 when compared to the same month in the preceding year.

Stressing that the rise in the cost of foods was responsible for the rise in the rate, NBS said “the contributions of items on a class basis to the increase in the headline index are presented, thus: Bread and cereal (21.67 per cent), actual and imputed rent (7.74 per cent), potatoes, yam and other tubers (6.06 per cent), vegetable (5.44 per cent) and meat (4.78 per cent).”

NBS added: “The highest increases were recorded in prices of gas, passenger transport by air, liquid fuel, fuels and lubricants for personal transport equipment, vehicles spare parts, solid fuel, etc.”

The core inflation (other items less volatile farm produce) also slowed from 19.16 per cent to 18.84 per cent y/y growth last month, underpinning the weakening aggregate demand.

In the month, according to the data, food inflation, on y/y analysis, was highest in Kwara (29.51 per cent), Imo (27.47 per cent) and Lagos (27.42 per cent), whereas Sokoto (18.54 per cent), Jigawa (19.67 per cent) and Yobe (21.89 per cent) recorded the slowest rise.

But on m/m basis, Yobe with (3.15 per cent change, Edo (3.03 per cent), and Ogun (2.9 per cent) recorded the steepest movement. The report did not give reasons for the trend.

The latest Food Security Update of the World Bank released on Monday identified Borno and Yobe states as areas where food insecurity could deteriorate to a crisis condition in the next three months as the region moves deeper into the dry season.

The two states, according to the World Bank, could join western and southern Katsina, northern and southern Sokoto, northern and central Zamfara, among other areas in the North, said to have been in “food crisis conditions.”

The CPI reading came on the heels of escalating cash scarcity, which economists said has kneecapped economic activities, weakened consumption and threatened cash-dependent segments of the economy such as internal trade and informal sectors.

The old N500 and N1,000 notes are back to Automated Teller Machines (ATMs) across major cities, while banks have continued to ration payment with third-party banks’ ATMs paying as little as N1,000 per withdrawal.

Economists have expressed diverse views on the correlation between naira scarcity and the recent inflation prints, with some warning that limiting public access to cash as an inflation-fighting tool could be counterproductive and hurt the economy badly.

Prof. Uche Uwaleke, a capital market expert, said the inflation rate dropped, looking at the m/m movement. He said the monthly figure suggests the economy witnessed a slight downward pressure in the general prices of commodities.

He said the reverse may not be unconnected with the cash scarcity, which resulted in low demand for goods and services following the cash-based nature of the Nigerian economy.

“Recall that as a result of the cash scarcity and low demand, many traders who deal in perishable items were forced to sell at below prices due to a lack of storage facilities. In my opinion, the use of cash scarcity to stifle demand is not a sustainable way to tackle inflation as it hurts economic growth and could lead to loss of jobs,” the economist argued.

Going forward, he advised, the Central Bank of Nigeria (CBN) to put measures in place to ease the cash crunch and switch to the gradual implementation of its cashless policy.

Also speaking, Managing Director of 3Data Concept Limited, Jonathan Izuchukwu, balked at the data, saying he expected the composite inflation to exceed 30 per cent.

“I doubt the figures. With the impacts of the naira redesign on artisans, transporters and marketers, I expect the inflation figures to rise above 30 per cent. In the last two months, there is nothing that worked smoothly in Nigeria. How then can we have a marginal rise?”

He warned that there would be more troubles ahead if there is no stability in the system before planting season gets underway, “because farmers and farm workers conduct their businesses in cash.

“It is not enough for CBN to release a statement saying old notes are back in circulation. The bank should go ahead and issue the necessary directives to the banks to get Nigerians to trust in the banking system again.”

President Muhammadu Buhari and Godwin Emefiele, governor of the Central Bank of Nigeria (CBN).

Another economist, Ladi Olajire, doubted if the President Muhammadu Buhari-led administration was still interested in providing leadership to stimulate economic growth.

“The current government is disinterested in the happenings in the country now. The President seems to have begun his countdown to May 29. The naira redesign is a bad policy. The effects are not showing yet. It will take a few months for the government and the people to know the damage it has done to the economy.”

A consultant to the ECOWAS Common Investment Markets, Prof. Jonathan Aremu, linked the continuous uptick in inflation figures to the low productive capacity of the economy.

“Without economic stability to enable people to produce, inflation will continue to go up. Government should put in place the necessary infrastructure like power and good roads. We also need to address the issue of insecurity and the energy crisis. The fuel queues are still there and that is adding to the cost of transportation,” he noted.

According to him, the restriction on cash holding will worsen the situation, as it has restrained production and other economic activities, which would invariably trigger another round of price crisis.

“It is a very simple logic, if the people do not have money to produce, the few products available become expensive because more people will demand the few available goods. If there is money, companies can buy raw materials and traders would go to villages to buy their wares. That is not happening because there is no money,” Aremu explained.

Executive Director of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, charged government to focus on the supply side challenges around energy costs, foreign exchange crisis and insecurity to bring the inflation rate back to normal. He said the issues need urgent attention to rescue the economy.

According to him, “we should be able to produce energy locally and give room to private companies that are interested in building oil refineries.

“We should not only depend on NNPC. If we can produce fuels locally, the prices will come down and be affordable.”

CBN Governor, Godwin Emefiele.

Meanwhile, the CBN Governor, Godwin Emefiele, yesterday, urged governors of Central Banks and other African financial sector regulators to be more vigilant in their regulatory and supervisory roles to forestall any run on banks.

Emefiele gave the charge at the opening of the 2023 African Central Banks Conference holding at the Global Leadership Centre, Johannesburg, South Africa.

Speaking on the current global dynamics and specific policy developments in Nigeria to address emerging shocks, he advised Central Banks on the continent to draw lessons from the recent failure of Silicon Valley Bank (SVB) and Signature Bank in the United States by putting in place regulations that will prevent any run on banks in their countries.

Emefiele, while sharing Nigeria’s experience in regulating banks, noted that the threats posed to the financial system necessitated the release of new guidelines and regulations to tackle potential infringements and, in the process, protect depositors’ funds as well as promote greater transparency in the sector.

According to him, regulators must be alive to their responsibilities by ensuring that banks under their regulatory watch are financially healthy and do not suffer a similar fate as the Silicon Valley Bank, which, until its collapse recently, catered to many of the world’s most powerful tech investors.
JUST three months to the commencement of its planned gradual removal of petroleum subsidy, the Federal Government said it has yet to harmonise templates with states on palliatives to cushion the expected harsh effects on Nigerians.

Minister of State for Budget and National Planning, Clement Agba, told newsmen, yesterday, after the Federal Executive Council (FEC) meeting presided over by President Buhari, that notwithstanding the works of the committee headed by Vice President Yemi Osinbajo for about a year now, nothing definite has been agreed on the matter.

Agba, fielding questions on consequences of the subsidy removal without necessary palliatives to lessen the impact, however, expressed optimism that the committee working with governors would arrive at a common position on the matter.

Continuing, he said there is no timeline for the Osinbajo’s committee to conclude the discussion, which, according to him, is ongoing.

He recalled that under the Federal Government’s 2022 to 2023 Medium-Term Expenditure Framework (MTEF), a proposal of N3.3 trillion was made for fuel subsidy between January and June 2023.

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