* Insist Rate Higher Than Readings By NBS
By: John Danjuma Omachonu
Inflation is generally regarded as the rate of increase in prices over a given period of time.
It can also be said to be a situation when too much money is chasing few goods and its typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
Specifically, Nigeria’s inflation rate rose to 22.04% in March 2023, the highest since 2009, according to a recent Consumer Price Index report released by the National Bureau of Statistics (NBS).
The continuous rise in the inflation rate, no doubt, poses challenges for the central bank’s (CBN’s) monetary policy strategy and indicates key structural challenges in the Nigerian economy, particularly in areas such as food, housing, and petrol.
However, the level of inflation continues to rise despite CBN’s monetary policy tightening over the last year. In February, Nigeria’s central bank increased its benchmark monetary policy rate to 18%.
CBN had in the monetary policy communique, cited the inflation rate 14 times, and in its outlook, expressed concerns over the continued upward pressure on inflation, the rising cost of debt and debt servicing, as well as deteriorating fiscal balances remain headwinds, which it claimed may undermine the smooth path to a faster recovery and prosperity.
However, the continuous rise in inflation suggests key structural challenges remain in the Nigerian economies, especially in areas like food & non-alcoholic beverages, housing, water, electricity, and petrol.
With the inflation rate now at 22.04%, CBN, just like it indicated, would continue monetary policy tightening focusing on sucking out money from the economy.
The implication is that, among others, yields on fixed-income security will keep rising in the short term, a development that will impact negatively on banking intermediaton.
Though CBN seems excited with an endorsement by the world Bank and International Monetary Fund (IMF) of its monetary tightening stance and even also recommended increase in taxes, reactions From The Street (FTS) are in sharp disagreement with some of its policy measures so far.
The implication according to them is that, given the fact that the inflation is driven majorly by rising food prices at a time that CBN took direct responsibility of dealing with farmers through the Anchor Borrowers program, for which billions of naira has been expended, leaves much to be desired.
Also the fact that CBN has been acting in breach of its own enabling Act by printing money through Ways and Means for the federal government to finance budget Deficits, with its attendant inflationary pressures.
For instance, the CBN’s act allows loans of not more than five percent of the country’s actual revenue of the previous year, but what the nation has been witnessing is rather unrestrained advances of over ₦20 trillion.
According to Muda Yusuf, chief executive of Centre for the promotion of Private Enterprise, who appeared on the Channels Television’s Sunrise Program on Monday, April 17, 2023, “printing of money is inflationary and diminishes purchasing power. The same thing happens when taxes are increased without increased production.”
The implication is that Nigerians are becoming more impoverished on daily basis.
Speaking further Yusuf, also, former Director General of Lagos Chamber of Commerce and Industry, (LCCI) berated CBN for the unrestrained exposures to the federal government as well as in its agriculture program, even with the much needed mechanization lacking, adding “this is unprecedented in the history of this country.
Am amazed at the drama around rice and rice pyramid, without much of agric mechanization and technology.”
Proferring solution, Yusuf called on CBN to face its core responsibilities and less of distractions,, limit CBN’s funding of deficits, reform the foreign exchange market so as to reduce multiple exchange rates and reduce insecurity that has prevented farmers from going to their farms.
Professor Ken Ife, development economist, who also featured on the program posited that the world bank/IMF recommendations are not new except for lack of political will and good governance to execute the various reforms that had been recommended.
Acknowledging the external negative impact of the Russia-Ukraine crisis and those of the western economies, Ife said the porous borders have made Nigerian goods cheaper and attractive to over 100 million people, within our neigbourhood that the country is feeding, adding, “our neigbours hardly go to farms now because it is cheaper to either buy food items or smuggle them into their countries and also aided by the poor exchange rate of the naira against even the currencies of our neigbours.”
He criticised the $800million post subsidy palliative from the World Bank, saying people should reduce their desperation for power and wastes on moribund government institutions like refineries.
The government should stop further waste of scarce resources on the refineries but diverted to profitable ventures that would improve the lives of the citizens.
Another stakeholder, who pleaded for ananomity bemoaned the lack of synergy between the fiscal and monetary policies as well as discriminatory exchange rate where federal government claims to transact its own businesses at the rate of ₦460/$ and the general public buys the dollars at ₦750/$ does not portray government as being serious and alive to its responsibilities.
But CBN has signaled its intention to continue with its monetary policy tightening, focusing on reducing the money supply in the economy, and with the consequences of yields on fixed-income securities expected to rise in the short term.
Nigeria’s inflation rate rose to 22.04% for the month of March 2023 higher than the 21.91% reported for the month of February 2023.
This is according to the recent Consumer Price Index report released by the National Bureau of Statistics (NBS).
Last year, Nigeria’s inflation rate for the month of March was 15.92% forcing CBN to commence monetary policy tightening. Meanwhile, on a month-on-month basis, the inflation rate for March rose by 1.86% up from 1.71% recorded for the month of February 2023.
In fact, at 22.04%, this is the 9th highest inflation rate ever recorded in Nigeria since 2005 and the 21st since January 1996 when the data has been accurately captured and reported.
However, it is the highest since 2009 when the current consumer price index basket was adopted.
There is no doubt that continuous rise in the inflation rate piles pressure on the central bank’s monetary policy strategy which has chosen to increase monetary policy rates and limit physical cash in circulation as a two-pronged approach to combating inflation.
While money in circulation has reduced drastically, the money supply remains relatively high at over N53 trillion meaning that Nigeria continues to hold a significant hoard of quasi-cash.
More worrisome is the fact that core inflation, which strips out the volatile food inflation printed at 19.86%, the highest ever (since this CPI basket was designed).
Core inflation first touched 19% in January before decelerating to 18.84% in February 2023. On a month-on-month basis, the Core inflation rate was 1.84% in March 2023, up by 0.78% from 1.06% in February 2023.
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, Maintenance, and repair of personal transport equipment, Medical services, Passenger transport by road, etc.
Above all, the volatile food inflation rose slightly to 24.45% for the month of March 2023, higher than the 24.35% reported in the month of February 2023. This is also the highest food inflation rate on record.
On a month-on-month basis, the food inflation rate in March 2023 was 2.07%, this was 0.16% higher compared to the rate recorded in February 2023 (1.90%).
The rise in food inflation on- year on year basis was caused by increases in prices of Oil and fat, Bread and cereals, Potatoes, Yam and other tubers, Fish, Fruits, Meat, Vegetables, and Spirits.
Indeed, the nation’s Statistics Bureau pointedly said the contributions of items on the divisional level to the increase in the headline index are food & non-alcoholic beverages (11.42%); housing, water, electricity, gas & other fuel (3.69%); clothing & footwear (1.69%).
Others include transport (1.43%); furnishings, household equipment & maintenance (1.11%); education (0.87%); health (0.66%); miscellaneous goods & services (0.37%); restaurant & hotels (0.27%); alcoholic beverage, tobacco & kola (0.24%); recreation & culture (0.15%) and communication (0.15%).
But, the level of inflation continues to rise despite the central bank’s monetary policy tightening over the last year. In February, Nigeria’s central bank increased its benchmark monetary policy rate to 18%.
In the monetary policy communique, where the apex bank cited the inflation rate a whopping 14 times, its outlook expressed concerns over the continued upward pressure on inflation, the rising cost of debt and debt servicing, as well as deteriorating fiscal balances remain headwinds, which it claimed may undermine the smooth path to a faster recovery.
However, the continuous rise in inflation suggests key structural challenges remain in the Nigerian economies, especially in areas like food & non-alcoholic beverages, housing, water, electricity, and petrol.
With the inflation rate now at 22.04% the central bank is likely to continue monetary policy tightening focusing on sucking out money from the economy. We expect yields on fixed-income security to keep rising in the short term. Nairametrics reported yields rose to 17% at the most recent auction.
Infact CBN Governor, Godwin Emefiele recently pledged to improve supervision and monitoring of banks, particularly, following concerns over global banking crisis.
Emefiele, who spoke on the sidelines of the International Monetary Fund/World Bank Spring Meetings in Washington DC said regulators in Nigeria would continue to keep their eyes on banking system stability, through monitoring and supervision of financial institutions.Emefiele said this during an interview with .
In addition, he pointed out that the support of CBN’s tight monetary policy by the IMF was a testament to the fact that the central bank was doing the right thing.
“So, the focus remains that monetary policy and monetary authorities must continue to focus on inflation so as to continue to bring it down. While monetary authorities are doing their work, to bring down inflation, they must also keep their eyes on banking systems’ stability, through monitoring, supervision, and regulatory frameworks and the rest of them,” Emefiele stated.
He said: “We are delighted that even in sub-Saharan Africa, the growth levels in Nigeria, even though by our assessment is still sub-optimal, that the IMF would among all the countries in Africa, say that growth in Nigeria should be retained at 3.2 percent, gladdens our heart. “It means we are doing certain things that are correct and we’ll continue to do those things that are right. But it also means that we are not going to remove our eyes on monetary policy, which is to focus extensively on how to moderate inflation, but at the same time, ensure that banking system stability remains resilient and then strong, as it is right now.”
