The Governor of the Central Bank of Nigeria, Olayemi Cardoso, has identified the huge purchases of food items by the government as palliatives for distribution to vulnerable citizens as a contributor to the galloping food inflation in the country.
Cardoso also sees ‘seller inflation’ arising from the oligopolistic structure of commodity markets as seen in the prices of local commodities as another challenge to fighting inflation in the country.
He disclosed this in his contributions during the March Monetary Policy Committee meeting, which was published on CBN website on Monday.
According to the governor, it is clear indication that the monetary factors contributing to inflation are diminishing in their significance, which he sees as an evidence of the right monetary policy measures that have been pushed out since assumption of office.
“Staff reports show that the principal drivers of acceleration in inflation are hikes in food and energy prices which are associated with structural factors. Further, new dimensions to inflationary pressure are emerging. First, ‘seller inflation’ arising from the oligopolistic structure of commodity markets such as noticed in the prices of local commodities is gaining significance. In addition, huge purchases by the government for distribution as palliatives to vulnerable citizenry is adding another dimension to the food price inflation, with seasonal factors of food price increases during religious fasting and festive periods, adding price cyclicality. Some of these new sources of inflation are better addressed by the fiscal authorities to complement the efforts of monetary policy in achieving all round price stability.
Having identified these non-monetary components of the current inflationary pressure, the major concern of the MPC at the March 2024 meeting was to ensure that the negative real interest rate is reduced to attract capital flows to improve liquidity in the foreign exchange market and stabilize the exchange rate, he said”
However, although the MPC meeting raised the benchmark interest rate to 24.75 percent from 22.75 percent, aimed at tackling inflation, the Consumer Price Index report released by the Nigerian Bureau of Statistics (NBS) in April, showed the country’s inflation rate increased to 33.2 per cent in March.
The food inflation rate also reached 40.01 per cent, with a year-on-year increase of 15.56 percentage points from 24.45 per cent in March 2023.
The CBN governor, in his contribution, noted that inflationary pressure had failed to abate despite notable stability in the foreign exchange market.
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He said, “Despite notable stability in the foreign exchange market resulting from decisions taken at that 293rd MPC meeting, inflationary pressure remains unabated. While there is the argument that the significant tightening since the last MPC meeting is yet to fully permeate the system and yield its expected impact, the risk of galloping inflation persists.
“If such a hyper inflationary scenario is to become reality, available options to control inflation could be severely constrained. From the facts presented to the MPC, there is a clear indication that the monetary factors contributing to inflation are diminishing in their significance.”