Why Nigeria’s Inflation Keeps Rising-Economists 

With the effect of the coronavirus pandemic on the economy still lingering especially from supply chain disruptions, it is no surprise that headline inflation has continued to rise with the National Bureau of Statistics October number coming in at 14.23 per cent up from 13.71 per cent the previous month.

The persistent inflation had in the past defied all monetary policy measures of the Central Bank of Nigeria and that of the fiscal policy authority as being implemented by the Ministry of Finance, Budget and National Planning.

Based on statistics issued by the National Bureau of Statistics, inflationary pressures have been heightened within the last 32 months hitting 14.23 per cent in October this year.

The last time Nigeria’s inflation rate was as high as this was in February 2018 when the index rose by 14.33 per cent

While the CBN had in recent times taken various policy measures such as tinkering with the Monetary Policy Rate, Cash Reserve Requirements as well as other unconventional policies, such measures have not achieved the desired impact based on the structural problems facing the economy.

For instance, during the last Monetary Policy Committee meeting held in September, the CBN Governor, Mr Godwin Emefiele had said that the apex bank was worried about the rising inflation.

Findings showed that the persistent rise in inflation was driven primarily by legacy structural factors such as the inadequate state of critical infrastructure and broad-based security challenges across the country, which dampened production activities.

Other factors, according to investigations include the disruptions to supply chains following restrictions to movement to curb the spread of the pandemic, adverse weather conditions, which resulted in flooding of farmlands as well as the inflation pass-through to domestic prices following the depreciation in the exchange rate.

Similarly, the recent increase in energy cost has further impacted the domestic price level negatively in the short-term.

Speaking on the development on Monday, some finance and economic experts told THE WHISTLER that there is need to stimulate production to be able to tackle the uptick in inflation.

Those that spoke to this Newspaper in separate telephone interviews on the rising inflation are the President, Association of Capital Market Academics of Nigeria, Prof Uche Uwaleke; and a Professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Ogun State, Sheriffideen Tella.

Uwaleke who is also the Chairman of the Chartered Institute of Bankers of Nigeria, Abuja Chapter, said contributory factors such as the continuous border closure, the increase in Value Added Tax and implementation of Stamp Duty and the high exchange rate especially in the parallel market were responsible for the inflationary pressures.

He said, “The increase in the pump price of fuel also contributed because according to the NBS, a major cause of core inflation came from increase in transport cost.

“It is of concern that food inflation is over 17 per cent and has remained the major driver of inflation even during this harvest season when expectations ordinarily should point to a downward trend.

“Food inflation in October was highest in Edo, Kogi and Zamfara and may not be unconnected with insecurity in these parts of the country.

“Since food inflation is the major challenge, it is obviously a supply issue and has gone beyond what the CBN monetary policy can control.

“Consequently, government should focus on increasing food production by aggressively implementing the massive agricultural programme contained in the Economic Sustainability Plan.”

In his comments, Tella said that the vulnerable nature of the economy had made it imperative for the government to give tax relief to businesses to stimulate domestic output.

He blamed the rising inflation on the continuous increase in production input, adding that most of the resources needed for the production of goods and services have been negatively affected by government’s policies.

He said, “Production is not going on as it ought to be and there has been continuous drop in output. Prices of inputs are also going up. What this means is that the prices have not been stable and it has been going up because the electricity tariff has been increase. Price of input like power, energy has also increased and so we expect all these things to push up the prices of our goods.

“Also, the exchange rate has been increasing and it points to the fact that price of inputs for production has been rising and this must reflect on other things.

“The price of transporting commodities from the farms to the market has increased because of high energy cost. All these points to the fact that we cannot escape continuous price increase in all aspects.

When asked what can the CBN do to win the war against unstable prices as a result of the high inflationary pressures, the University Don said, “CBN has been losing the war for long because inflation targeting is the monetary policy framework of the CBN but it has not been able to contain it because both monetary as well as fiscal policies are pointing towards continuous increase in price.

“For instance, the interest rate which is a monetary variable has not been going down for lending but it has been going up for savings and this means there is shortage of funds for lending.

“This is because the government is borrowing heavily from the same market and banks prefer to give loan to government than to the private sector and so the private sector will have to pay more for that.

“So monetary variables are rising and putting pressures on inflation. In terms of fiscal policy measures, tax is rising, price of transportation has risen, cost of electricity has risen and so, all of them are putting pressure on inflation.

“The monetary and fiscal authorities will have to come together to develop measures on how prices can be brought down because if they are working independently, price reduction cannot be achieved.

“The major thing they need to do is to increase domestic output and stimulate productivity through tax reliefs for large, small and medium scale enterprises and that is what other countries have done during this period of Covid-19 pandemic.”