Despite efforts by the Central Bank of Nigeria to tame the country’s accelerating inflation, it rose for the 13th consecutive time in January, writes FELIX OLOYEDE
The National Bureau of Statistics on February 15 released the data on the country’s inflation rate for January. Inflation picked up to 29.90 per cent, the 13th time in a row that there has been an uptick, bringing it to a 28-year high. It was 28.92 per cent in the previous month; and the drivers of prices in the country have been the same – food and core indices, which rose to 35.41 per cent year-on-year and 23.59 per cent, respectively.
The surge in food inflation was linked to the rise in prices of bread, cereals, tubers, oils, fish, meat, and other staples.
Higher prices of passenger transport by road and air, medical services, actual and imputed rentals for housing, pharmaceutical products, and accommodation services, among others were the drivers of the core index.
On a month-on-month basis, headline, food, and core inflation spiked to their highest levels in five months, hitting 2.64 per cent, 3.61 per cent, and 2.24 per cent month-on-month, respectively.
Experts have blamed the exorbitant prices of food in the country on insecurity, especially on the back of attacks by bandits and herders in the North, which have scared farmers from the farms. The North, especially the Middle Belt, which is Nigeria’s food hub, has been plagued by insecurity. One such attack was the killing of over 140 villagers in Mangu and Bokkos Local Government Areas of Plateau on December 26, 2023.
The security challenge has not been limited to the North, kidnapping has also become a thriving business in the South. Two traditional rulers were recently killed in Ekiti State, South-West Nigeria by suspected kidnappers while they were returning from a meeting. Also, some pupils and their teacher were abducted in Ekiti State last month. Parents had to cough out N15m ransom before their wards were released, though the driver was unlucky as he was murdered by the kidnappers.
The removal of the petrol subsidy in June has not also helped matters. President Bola Tinubu during his inaugural speech on May 29, 2023, announced an end to the petrol subsidy regime. This has caused prices of petrol to jump N295 per litre in May to over N600 per litre depending on the location of purchase.
According to the NBS, the average retail price paid by consumers for Premium Motor Spirit for December 2023 was N671.86, indicating a 225.85 per cent increase when compared to the value recorded in December 2022 (N206.19).
NBS in its transport fare watch report for December noted that the average fare intra-city commuters paid per drop during this period was N902.70, 40.03 per cent higher year-on-year basis than N644.66 in December 2022.
“In another category, the average fare paid by commuters for bus journey intercity per drop was N7,402.16 in December 2023, indicating an increase of 19.26 per cent on a month-on-month basis compared to N6,206.53 in November 2023. On a year-on-year basis, the fare rose by 86.40 per cent from N3,971.22 in December 2022,” the statistics agency indicated.
For air travel, which has become the toast of many travellers because of the high insecurity on the highway, the average fare paid for specified routes single journey in December went up by 5.36 per cent month-on-month to N85,692.12.
“On a year-on-year basis, the fare rose by 14.87 per cent from N74,597.30 in December 2022,” NBS noted. Consequently, the prices of most commodities have shot up due to higher fares.
The harmonisation of the country’s foreign exchange markets in June also exacerbated the economic woes.
Since the CBN Governor, Olayemi Cardoso, on June 14 announced the unification of the different segments of the country’s forex markets, the value of the naira has plummeted by 246.65 per cent from 463.38/$ at the Investors’ and Exporters’ forex window on June 9, 2023, to 1606.32/$ on February 19, according to data obtained from the apex bank. The local currency traded 1,825/$ at the parallel market on Wednesday.
Government efforts
The CBN has adopted different strategies to address the country’s exchange volatility since Cardoso took the apex bank’s reign of leadership.
While addressing the House of Representatives on the current economic challenges on February 6, the CBN governor noted, “To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the foreign exchange markets. These include unifying foreign exchange market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs (bureau de changes), enforcing the Net Open Position limit, and adjusting the remunerable Standing Deposit Facility cap.”
Part of the measures taken by the CBN to stabilise the local currency was mandating commercial banks to sell off dollars in their vault.
Consequently, lenders offloaded $3.83bn in eleven days of trading activities through the Nigerian Autonomous Foreign Exchange.
The apex bank also banned cash payment for personal transport allowance and basic transport allowance.
Similarly, it stopped international money transfer operators from paying dollars to remittance recipients.
The government is also employing unorthodox means to save the local currency, as the Economic and Financial Crimes Commission raided some bureau de change operators in Abuja on Monday for allegedly speculating against the naira.
Reacting to the January inflation rate, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said, “Economic growth may remain subdued while the risk of stagflation heightens. Regrettably, the major inflation drivers are not receding, if anything, they have become even more intense.”
According to Yusuf, the depreciating exchange rate, surging transportation costs, logistics challenges, forex market illiquidity, astronomical hike in diesel cost, insecurity in farming communities and structural bottlenecks to production were responsible for the soaring inflation.
Expected MPC decision
“These are largely supply-side issues. The weakening of the naira against the currency of our neighbouring countries (CFA) had continued to incentivise the outflow of agricultural products to these countries. This is complicating the supply side challenges, especially of food crops,” the CPPE boss declared.
Analysts at Financial Derivatives Company in their analysis of the NBS January report noted that unabating accelerating inflation would spur the Monetary Policy Committee of the CBN to maintain its hawkish stance in its next meeting, which comes up on February 26 and 27.
“In view of the foregoing, the MPC is expected to maintain its hawkish stance in a bid to rein inflationary pressure. Analysts posit the likelihood of MPC raising the policy rate by at least 200 basis points to 20.75 per cent per annum, from the current rate of 18.75 per cent per annum. In the past, an increase in the policy rate has not affected the general rate but this time it may likely do,” FDC analysts reasoned.
Analysts at Meristem project higher core inflation as the naira continued “its depreciation relative to the dollar amid persistent volatility in the foreign exchange market”.
“Moreover, recent developments such as the Central Bank of Nigeria’s decision to raise the exchange rate for import duties and the potential removal of electricity subsidies are factors that could accelerate the country’s core inflation rate,” they explained.
Expert’s recommendation
An economist with Ajayi Crowther University, Oyo, Dr Segun Ogundare, argued that foreign ideas could not solve the country’s domestic economic challenges.
The International Monetary Fund recently advised the Federal Government to remove the electricity subsidy, which has been projected to hit N1.6tn this year, because it was too expensive for the government.
However, Ogundare believed that if the government could solve the insecurity challenge that was denying farmers access to their farms and giving micro businesses access to funding, food prices would drop. “Foreign solutions cannot solve our domestic problems. We need to look inward. The high inflation in the country is man-made.
“We don’t have business with what is happening to us now. If we solve the security challenge and enhance micro businesses, we will be out of the woods,” the economist opined.
A financial expert and founder of Richard and Co., Prof. Richard Mayungbe, noted that due to insecurity, farmers were unable to go to their farms to produce foodstuff, thereby, scarcity had been created by insecurity.
“On the other hand, the withdrawal of fuel subsidy has created a surge in financial allocation to states and local governments to the point that the governors and local government chairmen are overwhelmed and have no immediate plan of what to do with this huge allocation other than engaging in frivolous expenditures which add nothing to production.
“Some even depressed the forex market by exchanging a huge portion of their allocation to the dollars immediately after the allocation is received for speculation purposes.
“And as a result of floating the naira, high taste for foreign goods has depreciated the naira, thereby, bringing high cost of imported items, known as imported inflation,” he argued.
To address the current challenge, he urged the government to rework the country’s security architecture “as proposed by the President, including the introduction of forest guards to secure the farmlands for farming.
“States and local governments should move into massive agricultural production with the huge amount of money in their hands and idle labour in their respective states.
“Create incentives for local producers to discourage importation of what can be readily produced locally,” Mayungbe suggested.
The International Monetary Fund also encouraged the Federal Government to increase agriculture inputs to boost production and bring down the prices of food items.
The IMF, in its Country Report No. 23/94 released this month, said, “The cross-country analysis identifies four levers for raising food security levels: raising per capita consumption, raising production yields, limiting food price inflation, and reducing reliance on food imports. Per capita consumption is far below comparator countries in Nigeria, and it could be stimulated through increased diversification. Yields are also lower in Nigeria than in other countries due to scarcity of inputs (fertilizers, modern irrigation methods, and mechanisation).
“Addressing challenges to access to timely, high quality, and price competitive inputs would not only achieve optimal productivity of agricultural outcomes but also temper food inflation.”
Pundits believe addressing insecurity in the country will help tackle the current food challenge and consequently, tame inflation.
