Rice. Photo: PIXABAY• FX crisis, food shortage push costs
Nigeria’s inflation rate jumped to 14.23 per cent, year-on-year, in October on the back of escalating food prices and a protracted crisis in the foreign exchange (FOREX) market.x
The composite inflation rate rose from 13.71 per cent in September to cross the 14 per cent predicted by the Central Bank of Nigeria (CBN) by the end of the year.
As shown by the Consumer Price Index (CPI), a metric for measuring the average prices of goods and services consumed by people over time, the figure gained 0.52 percentage points to return to the range it was in early 2018.
The CPI released by the National Bureau of Statistics (NBS), yesterday, also showed a 1.54 per cent month-on-month rise in the index, compared to 1.48 per cent recorded in September.x
The inflation rate decelerated from the 14 per cent mark in March 2018 after the country emerged from a major FOREX crisis. Headline inflation has remained below 14 per cent until the October rise, which was triggered by what many have described as a crisis in the food market.
The month witnessed remarkable rise in food inflation, which hit 17. 38 per cent year-on-year. It was 16.66 per cent in the previous month.
Members of the Organised Private Sector (OPS), yesterday, warned that the reality could be far-reaching.
According to the OPS, present realities show that Nigeria’s inflation rate might hit 20 per cent by December as demand for food and other commodities rises in lieu of the yuletide season.x
Operators expect prices to rise by over 100 per cent in the next three months if nothing is done to check the primary sources fuelling inflation.
Acting Director-General of Manufacturers Association of Nigeria (MAN), Chuma Oruche, noted that Nigeria was experiencing cost-push inflation fuelled by the rising cost of production, as witnessed in transportation costs, security costs for farmers, and even foreign exchange crisis.
Specifically, he cited rising costs of inputs like feeds for poultry and fish farmers, insecurity in the food-producing regions, and the recently upwardly adjusted price of petrol.
“The reality on the ground is more than what is being projected. By December and up till February when demand pressure will be high, costs are expected to trend even higher than what is being experienced now. The Federal Government has to do its work. The CBN has abandoned monetary concerns for fiscal issues,” he added.x
On his part, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, identified variables impacting domestic prices to include transportation costs, logistics challenges, exchange rate depreciation, forex liquidity issues, VAT increase, climate change, insecurity in many farming communities, and structural bottlenecks to production.
According to him, these concerns are essentially supply-side issues and any mitigation measures would have to be situated in the context of these variables.
“Even the CBN had admitted that the potency of monetary policy instruments in tackling inflation is weak. Mounting inflationary pressures weaken the purchasing power of citizens as real incomes are eroded, it accentuates pressure on production costs, negatively impacts profitability, and undermines investor confidence.x
“The CBN has focused on boosting growth to improve output and moderate inflation. With the imminent recession, this is perhaps an appropriate policy choice. For an economy seeking to quickly recover and create jobs, monetary policy tightening is not an option”, he added.
Director-General of Nigeria Employers’ Consultative Association (NECA), Dr. Timothy Olawale, said the persistent increase in food prices, caused by border closures, restrictions in the FX market, and insecurity, predominantly in the Northern states, further heightened the inflation rate.
“Since the deregulation of petrol prices, the country has witnessed a petrol increase by almost 30 per cent in the last four months, which suggests a continuous increase in transport cost. Sadly, masses are now being battered on two fronts, high transport cost, and high inflation,” he explained.x
He then suggested that the Federal Government should roll out more direct fiscal interventions to aid domestic production, as has been done in the agricultural sector, and should also be extended to the mining, manufacturing, and other high job-creating sectors.
“While we applaud the various Intervention programmes of the CBN during the COVID-19 pandemic, the apex bank should complement its efforts by synergising its policies alongside the fiscal authorities in bringing needed growth and development into the economy.
“We believe that there is a need to review the whole rationale behind fuel subsidy removal, as the intention was to transmit the gains from it into productive sectors for greater gains of the economy. It will be desirous for Government to demonstrate transparency in channeling the subsidies into the real sector,” he added.x
A leading economist, Ayo Teriba, told The Guardian, yesterday that there is no end in sight for the depressing inflation trend until the country is able to boost non-oil export earnings. He noted that efforts to keep inflation under check without addressing the fundamentals responsible for the illiquidity in FOREX would amount to shadow chasing.
He dismissed the worry over the escalating inflation rate, urging the country to be more concerned about the impacts of the COVID-19 lockdown, border closure and poor non-oil receipts. “These are bigger problems,” he said, arguing that inflation is a mere symptom of the challenges.
According to him, the depreciation and devaluation of the naira in recent times is a major trigger of what many have described as a frightening inflation rate. While single-digit inflation has remained a mirage in recent years, a rate that tends towards 20 per cent is a nightmare, economists have said.
The last time Nigerian recorded single-digit inflation was January 2016, almost five years ago. Since then, it has oscillated mostly between 11 per cent and 13 per cent, hitting 14 per cent, 15 per cent, 16 per cent, 17 per cent, and, in extreme cases, 18 per cent.x
CPI, which many experts have argued flies in the face of the real cost of living, often defies contractionary monetary measures, raising questions about the real cost.
Leading economists and allied professionals such as Teriba, Prof. Pat Utomi, Birsmark Rewane, and Dr. Biodun Adedipe, had in the past called for fiscal discipline as a necessary option for dealing with the niggling inflation issue.
A school of thought led by Prof. Godwin Owoh went the extra mile, canvassing a wide-range census into the volume of currency in circulation.
With the international oil prices still extremely volatile, coupled with a fragile fiscal position, Teriba, who is also the chief executive of Economic Associates, said Nigerians might have to continue to bear with the increasing cost of living.x
IN October, as in the previous months, northern states, led by Zamfara and Sokoto, recorded the fastest inflation spike. Figures of a number of states in up north exceeded the national average.
On the flip side Cross River, the Federal Capital Territory (FCT), and Lagos recorded the slowest rise in inflation rate with 10.50 per cent, 11.84 per cent and 11.96 per cent respectively.
The movement of food inflation has continued to pose a question on the country’s food sufficiency plan.
A southern state, for the first in about four months, broke the northern laggard lead, as Edo recorded the fastest rise (21.7 per cent). Yet, food inflation in many northern states exceeded the national average by a wide margin. Kogi, Plateau and Zamfara even exceeded 20 per cent.
As the food index continues to drive up the inflation figures, experts are worried that the rise has shown that many Nigerian households are merely surviving.
An earlier survey by the NBS had warned that most households have been borrowing to feed since the outbreak of the COVID-19 pandemic. The same survey noted that the majority of the borrowers, who are said to resort to informal sources as banks had long pulled back retail loans, are not certain about their ability to repay.