The Central Bank of Nigeria, which is the apex regulatory body of banks recently expressed fears that inflation rate may rise marginally into the second quarter fueling fears in some quarters that the economy may take the hit. Ibrahim Apekhade Yusuf in this report examines the issues
To the discerning mind, the buzzword ‘inflation’ has both its merits and demerits. But when the top echelons of the economic managers, especially the CBN governor, Godwin Emefiele brood over this subject then it becomes something that should be taken seriously.
Nigeria’s inflation rate is expected to rise for the rest of this year till mid-2019, said governor of the Central Bank of Nigeria, Mr. Godwin Emefiele.
According to him, despite this gloomy picture, the short-term outlook of the Nigerian economy remains good. Emefiele disclosed this at the bankers’ dinner in Lagos in his speech entitled Strengthening the Economic Recovery Process in Nigeria, peered into his crystal ball and told Nigerians what to expect in 2019.
“We expect that monetary policy stance will remain judicious, research-driven, adequate and supportive of the real economy subject to underlying fundamentals. The current tight stance is expected to continue in the near-term, especially in view of rising inflation expectations and exchange market pressures. Though we will act to appropriately adjust the policy rate in line with unfolding conditions and outlooks, CBN will continue to ensure that the policy interest rate is delicately set to balance the objectives of price stability with output stabilization,” he assured.
Echoing similar sentiments, Chika Mordi, Chairman, United Capital Plc while analysing the results of the company’s performance for the 2018 financial year ended in March 2019, argued matter-of-factly that “the headline inflation rate moderated significantly to settle at 11.4% in December 2018 relative to 15.2% in January 2018.”
Investigation by The Nation revealed that inflation rate in Nigeria averaged 12.46 percent from 1996 until 2019.
Nigeria inflation rate
Available information obtained from the Nigeria Bureau of Statistics shows that the nation’s inflation rate was last updated on March of 2019.
According to the NBS, in Nigeria, the Consumer Price Index (CPI) measures the change over time in prices of 740 goods and services consumed by people for day-to-day living. The index weights are based on expenditures of both urban and rural households in the 36 states. The most important categories in the CPI are Food and Non Alcoholic Beverages (51.8 percent of total weight); Housing, Water, Electricity, Gas and Other Fuel (16.7 percent) and Clothing and Footwear (7.7 percent). Transports account for 6.5 percent of total index and Furnishings and Household Equipment Maintenance for 5 percent. Education represents 3.9 percent of total weight, Health 3 percent, Miscellaneous Goods and Services 1.7 percent and Restaurants and Hotels 1.2 percent. Alcoholic Beverages, Tobacco and Kola account for 1.1 percent of total index, Communications for 0.7 percent and Recreation and Culture for the remaining 0.7 percent.
According to the NBS, Nigeria’s annual inflation rate dropped to 11.31 percent in February 2019 from 11.37 percent in the previous month, as prices rose at a slower pace for all categories.
Food inflation fell to 13.47 percent in February from 13.51 percent in the previous month. In addition, prices rose at a softer pace for: housing & utilities (7.24 percent vs 7.35 percent); clothing & footwear (10.08 percent vs 10.14 percent); transport (9.57 percent vs 9.80 percent); furnishings & household equipment maintenance (9.59 percent vs 9.70 percent); education (9.64 percent vs 9.70 percent); health (9.69 percent vs 9.81 percent); miscellaneous goods & services (9.25 percent vs 9.40 percent); restaurants & hotels (9.04 percent vs 9.20 percent); recreation & culture (8.66 percent vs 8.71 percent); and communication (7.43 percent vs 7.48 percent). Annual core inflation, which excludes price of volatile agricultural products, edged down to 9.8 percent in February from 9.9 percent in January. On a monthly basis, consumer prices went up 0.7 percent, the same pace as in January.
What rising inflation means
According to Investopedia, “Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation’s currency.”
Many economists, businessmen, and politicians maintain that moderate inflation levels are needed to drive consumption—operating under the larger, overarching assumption that higher levels of spending are crucial for economic growth.
However, according to economic analysts, the rise in inflation whether marginal or substantial has adverse implication for the economy in terms of value money. Inflation arises when prices rise for energy, food, commodities, and other goods and services, the entire economy is affected. Rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate and government bond yields, and every other facet of the economy. When inflation is too high of course, it is not good for the economy or individuals. Inflation will always reduce the value of money, unless interest rates are higher than inflation. And the higher inflation gets, the less chance there is that savers will see any real return on their money.
Fears of rising inflation
However in the view of Adewunmi Hamed Adewale, an accountant with the Association of Bureaux De Change Operators of Nigeria, the fears over spike in inflation rate may not be unfounded. What needs to be done, he stressed, is for the government to be proactive rather than resign itself to fate.
Speaking with our correspondent recently, the ABCON boss said, “The issue on spike on rates is all based on projections the organ of government is looking at. Every indices of government in a way come in form of projections. And whatever projections the government is looking at to be able to inform. Every government wants a situation whereby the financial system needs to be a stable system and every reasonable government and every economy would a situation whereby the foreign exchange rate would be as stable as you can find such that investors can be able to predict the FX rates. We don’t pray for any spike that would further inflate the rate more than we the current situation. So we don’t pray for such. Because when there is a stable FX rate, every other aspects of the economy would be able to thrive very well. And you must realise that our economy is one that revolves round FX by the nature of the activities we operate in. and we should be able to and that’s the more reason why we must work towards the goal of this current administration which is saying let’s grow what we eat and let’s eat what we grow. So if there is a shift of focus from importation, the FX rate would be stable. If we are producing what we eat, in terms of local content development and we are not going to be dependent on importation. And there are some basic things
Quick wins
What the government can do as a matter of urgency, Adewale stressed, “is to drive the process of getting our infrastructure working. For instance, if power is put in place and its gets stable that would really help the local producers very well. If there is good power supply, definitely most local producers would not depend on powering their plants with generators and expending much money on overheads and all other production cost. So we can start from power. Let that be done. Let the government also fix our roads so that produce or products can be conveyed seamlessly from one location to the other. Things being produced in the north should be able to get to the south without much hassle and vice versa.”
Like Adewale, Chinedu Bosah, a public affairs commentator said, “if there is the use for FX for importation of things like took pick, juices and what have you, then our FX rate can be more stable and ultimately our currency. And the spike being envisaged may not really happen at the end of the day provided thee is sustainability in the level of local production and local content development. And with that we will all be happy for it and even the investors would be happy to say yes, our rate is stable let come and invest. Any reasonable investor wants to see a business environment that is stable including stability in rates, stability in policies, and even the polity itself.”
CBN’s interventions
Perhaps in its quest to rein in the adverse effects of rise in inflation figures, the CBN decided to cut its benchmark interest rate by 50 bps to 13.5% on March 26th 2019, mainly to stimulate the economy. The move surprised markets who had expected the rate to remain steady at 14% and marks the first rate cut since November 2015. Six out of the eleven members of the monetary policy committee voted to reduce the current monetary stance. In February 2019, the annual inflation edged down to 11.3% from 11.4% in January, but still above the Bank’s target of 6-9%. Policymakers added that the economy is projected to grow between 2.7% and 3% in 2019.
