Economists have advised Nigerians to brace for higher inflation in the coming months.
They said that political spending as preparations for the 2023 general elections heightens, worsening exchange rate and other factors would keep inflation high.
As the country prepares for the 2023 general elections, they predicted that political spending worsening exchange rate and other factors would keep inflation high.
The economists – Ken Ife, Gbolade Idakolo, and Uche Uwaleke—also warned that an exchange rate increase would not bring down the inflation rate which currently stands at 19.64 percent, the highest in 17 years.
Ife, a professor of Economics, is the lead Consultant, Industry and Private Sector Development of the ECOWAS Commission while Uwaleke, also a professor of Economics, teaches at the Nasarawa State University, Keffi.
Idakolo, a former banker, is the managing director/CEO, SD&D Capital Management Limited.
Ife, in an interview with The Nation at the weekend, said that “ inflation will get worse before it gets better because it is held hostage by structural factors most of which clearly are beyond monetary policy.”
He listed the structural factors as “insecurity, high cost of diesel, power, gas, solid fuel, foreign exchange rate and imported inflation.”.
According to the expert, other factors that will exacerbate inflation are “high transport cost, galloping prices of farmgate/food sub-basket index-now over 22 percent, political spending, high speculation on the value of the naira, demand pressure on our farm produce from surrounding francophone countries.”
However, Ife was optimistic that “prices will start stabilising with harvest by October/November before December panic Christmas buying.”.
Idakolo who corroborated what Ife said, stated that only lower foreign exchange, improved productivity and lower production cost would bring the current inflation rate down.
“Until the exchange rate is brought significantly lower than it is now and there is an increase in productivity and reduced cost of production, we might not see inflation coming down soon,” he said.
Although the Economist noted that interest rate and exchange rates “are potential tools to control inflation,” he pointed out that they can only “work in a highly productive economy with high consumption rate”.
He added that the purchasing power of Nigerians will “continue to reduce month-on-month with a consistent rise in exchange rate which has impacted negatively on production coupled with cost of production on the rise due to high-interest rates on loans”.
Idakolo also stated that the Central Bank‘s reliance on interest rate as one of the tools for inflation control “is not enough because major sectors of the economy like agriculture, petroleum, etc. are witnessing a continuous decline in production.”
“We also must note that there is a constant loss of revenue through crude oil theft,” he added.
Idakolo suggested that “the CBN needs a sustainable solution to exchange rate by having a floating exchange rate that eliminates official exchange and allows market forces to determine the rate.”
According to him, “we need to increase the injection of much-needed foreign currency into the economy to boost production and increase activity in major sectors of the economy”.
The former banker advised the Federal Government to “block revenue losses from crude oil theft to have enough to intervene positively in infrastructural development”.
Uwaleke told The Nation that “the reality is that inflation expectations will continue to grow as long as the cost of petroleum products, electricity, exchange rate, and insecurity continue to rise”.
“The increase in headline inflation for the month of July was expected against the backdrop of rising inflation globally on account of supply chain disruptions from the Russian-Ukrainian conflict,” he said.
He added: “This outcome buttresses the argument that the monetary approach to tackling cost-push inflation does not lie in a hike in the Monetary Policy Rate.”
According to the university teacher, rising government deficits and borrowings “tend to compound the problem (high inflation).”
The increase in core inflation, he said, has a lot to do with the recent scarcity of forex and associated volatility in exchange rates.
He also believes that the “gap between the high inflation rate recorded in Kwara State, where food inflation was highest, and Kaduna State where it recorded the lowest rate is partly the result of high transport costs”.
As a solution, Uwaleke believes “the most effective way to tackle inflation is for the government to find a lasting solution to the seemingly intractable problems of fuel imports and insecurity while the CBN deploys more of its development Finance function in a targeted fashion”.
In view of the elevated inflation rate, the expert advised the government to “postpone the implementation of the telecoms and beverage tax till the inflationary pressure is significantly subdued.”