Some economic and financial experts have revealed why the country’s inflation has defied all measures put in place to curtail its consecutive surge under the administration of President Bola Tinubu.
On the president’s assumption of office in May 2023, inflation stood at 22.41 per cent and maintained a consecutive surge to the 28.92 per cent recorded in December 2023, according to the National Bureau of Statistics.
The inflation rate has maintained a steady rise despite the Central Bank of Nigeria’s increase in the Monetary Policy Rate to 18.75 per cent, floating of the naira, the Ministry of Agriculture and Food Security disbursement of farm inputs at a subsidized rate to farmers and the various interventions of the ministry of finance intervention.
Advertisement
In an interview with THE WHISTLER, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE) Mr. Muda Yusuf and a Professor of Finance and Capital Market Studies, Uche Uwaleke, revealed why inflation has been on the rise.
Uwaleke said inflationary pressure in Nigeria today is more on the food component reflecting the impact of cost-push factors arising, especially from the high cost of electricity and fuel as well as flooding and insecurity.
He noted that there is also the demand side occasioned by increasing money supply from rising FAAC allocations, fiscal dominance, and CBN’s Ways and Means, which feed into high exchange rates.
Uwaleke said, “Given these demand and supply inflation dynamics in Nigeria, both monetary, fiscal, and trade policies must be properly coordinated to boost production and tame inflation.
“State governments should endeavor to apply the increase in FAAC allocation due to naira devaluation on productive activities.
“The current effort by the government in boosting agriculture through the cultivation of 500,000 hectares of land, including the plan for Agricultural mechanization, is a step in the right direction.
“On its part, the CBN should ensure that direct advances to the federal government in the form of Ways and Means are curtailed within the ceiling specified in the CBN Act.
“I equally applaud the plan to set up special security teams to rid our forests of bandits, kidnappers, and insurgents” These moves according to him will curtail the inflation surge in Nigeria.
Yusuf said the major drivers of inflation cannot be addressed immediately.
He said, “The first is the exchange rate. These are very fundamental, and they require time to be able to fix and we can only strengthen the currency if we have enough reserves. Under the previous administration, the foreign reserve was greatly deflated.
“The bulk of the corrupt money that gets into the system is also chasing this money (dollar), especially in the parallel market because we want to convert it into a portable currency and that is also pushing the demand for the dollar.
“So, apart from those who are seeking the dollar for a normal transaction. There’s some level of significant demand, but we don’t have data on the corruption effect of the exchange rate deposition. because you cannot make a demand on the official window.
“What do you say you want to import? What kind of raw material are you importing, when you are not travelling, you don’t have documentation. So, there is also the corruption element, which I don’t know how fast we can deal with that”.
He said the central bank is doing a lot to fix the forex crisis by clearing the backlog.
Yusuf added, “You can see how intractable the problem of insecurity has been. If it were a conventional war where there is a clear dividing line between the enemy and the country, it should be easy. However, the attackers are within and strike from areas in which you don’t even know. So, tackling insecurity will determine the progress we’re able to make.”
He also revealed to THE WHISTLER that energy cost is a major driver of inflation.
Yusuf said, “The energy situation is affecting transportation. It’s affecting production and this is also feeding inflation. because we are importing a lot of our petroleum products”.
He added that there is need to reduce importation to reduce the pressure on the naira.
“If we reduce our importation of petroleum products and increase our output, reduce the pressure on the dollar, and exchange rate, tackle insecurity, and clear the backlog of foreign exchange, then we see a lot more confidence returning to the FX market. Because we still have that money that is trapped, that has not been paid.”