Nigerian inflation continues to defy global trends, setting a new multi-decade of 27.3 per cent in October even as experts warned that prices, which have been an uptrend in the past two years, will not abate anytime soon.
Stakeholders are particularly concerned about the impact of runaway food inflation, which rose to 31.5 per cent, on households and how the crisis could push more individuals below the poverty line.
Nigeria, according to Our World in Data, is in the top spot of countries with the highest food expenditure with the percentage of total personal income that goes into food estimated at 60 per cent.
Experts said the situation would worsen if food inflation continues to uptick, a projection that implies more misery for those at the bottom of the economic ladder.
The National Bureau of Statistics (NBS) inflation reading aligns with expert estimations, which have projected the country’s inflation to hit 30 per cent before any inflection set in.
For one, it came shortly after the Economist Intelligence Unit’s (EIU) damned report about the country, saying the poor performance of naira and rise of black-market push factors signal a cloudy outlook for inflation.
The report said currency losses on the parallel market, where a sizable share of foreign exchange is transacted, would be a major driver of imported inflation going into 2024. From an estimated rate of 30.5 per cent at the end of the year, it warned that inflation would stay high at 23.6 per cent in 2024 on average for the year.
Added to the exchange rate pass-through effect, EIU pointed at what it called the delayed and insufficient monetary response and fiscal expansionism as key drivers of inflation going forward.
“Factors behind this include insecurity, a large devaluation in 2025, the need to deliver cost-reflective electricity tariffs and the Central Bank of Nigeria’s (CBN) dovishness. We expect inflation to average 13.2 per cent in 2025-28,” it noted.
Naira has lost about 40 per cent of its value since June when the CBN pulled the plug on the market. It currently trades around N1130/$ at the parallel, which the expansive apex bank often dismissed as non-existent. Prices of imported commodities are set on the black market rate, a reason many economists said the market would continue to determine inflation trends.
Over 27 per cent inflation suggests that prices are increasing over five per cent faster than they were in October last year when the headline inflation was 21.9 per cent and that average prices of goods are over 27 per cent higher than they were a year ago. This implies poorer households, a more expensive operating environment and a weaker real return on investment.
Experts have called for the strengthening of exchange rate management. They argued that implementing policies to stabilise and strengthen the local currency could help mitigate the impact of exchange rate fluctuations on imported goods’ prices.
Calls for the diversification of the economy may sound like a broken record, but therein lies the essence of unlocking the latent potential of the Nigerian economy.
Some view that reducing dependency on imports by diversifying the economy could make the country less vulnerable to external shocks and price fluctuations in specific commodities. But with the rising cost of energy, the odds against local manufacturing have continued to defy solutions.
The Nigerian Employers Consultative Association (NECA) has continually stressed the need to promote domestic production. It says that encouraging local industries could reduce reliance on imports and enhance domestic production capabilities.
Chief Executive Officer of the Centre for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf, has also advocated the need to implement effective trade policies such as tariff adjustments, import quotas or strategic trade agreements. These, he said, would help to regulate the flow of imports and manage their impacts on inflation.
The latest consumer price index (CPI) report shows that the inflation rate increased by 6.24 per cent over the 21.09 it was in October 2022.
Food inflation in October 2023 was 31.52 per cent on a year-on-year basis, which was 7.8 per cent points higher compared to the rate recorded in October 2022 (23.72 per cent).
The rise in food inflation on a year-on-year basis, NBS said, was caused by increases in prices of bread and cereals, Oil and fat, potatoes, yam and other tubers, fish, fruit, meat, vegetables, milk, cheese and eggs.
In its recent forecast for the year, KPMG predicted that Nigeria’s headline inflation may rise to 30 per cent by December 2023 because of fuel subsidy removal and the unification of the foreign exchange market.
Following the sharp rise in the cost of living after the removal of fuel subsidy, the federal government came up with some palliative measures to cushion the effect of the removal, part of which includes the release of N5 billion to each of the 36 states and the FCT to purchase foodstuff for distribution to the citizens.
However, six months down the line, the effect of the palliatives has yet to be felt by the citizens.
Reacting to the latest data, an economist, Eze Onyekpere, said the money that was disbursed to the states was not tied to any productive engagement or guided by an empirical framework.
“Remember there was a national social register which they said had issues. We had expected that they would review and strengthen it, but nothing has happened.
“Secondly you know we are importing lots of food items and with the free-floating of the naira and the high dollar price, we have import inflation.”
He said food inflation is high because the food Nigeria is not producing owing to insecurity, which has chased farmers out of their farms.
He noted that what the CBN is doing, in terms of tackling inflation, is ineffective because the bank is dealing with symptoms.
“What we should do is ensure there’s enough security across the country, especially in the food-producing states so that farmers can go to their farms without being kidnapped or killed.
“The money they are budgeting for agriculture should be tied to specific projects that can be monitored. If you look at the supplementary budget, it gives about N11.7 billion per geopolitical zone for dry season farming and there is another one for seeds and infrastructure. This has been going on for years; no accountability and they are not tied to any result.
“Let the budget for agriculture be targeted at actual farmers, the smallholder farmers that produce over 70 per cent of the food we eat,” he said.
“You can’t have a cabinet of 48 ministers and everybody is helpless. They should come up with solutions instead of the president running around begging for money,” Onyekpere added.
On his part, Prof. Godwin Oyedokun of Lead City University said the inflation would not ease if the government continues with its inefficient strategies.
He said: “We are not producing, and as long as we depend on importation with the high exchange rate, there’s no way inflation will not continue to rise, I think we are just not ready to control inflation.”
He said that the energy cost alone, which has made transportation very expensive, is enough to hit up inflation.
“You don’t expect a trader to spend so much transporting his goods to the market without adding the cost of transportation to the price. If we are serious about bringing down inflation, the government policies will change and the focus will be encouraging production and not consumption.”
Also, the National President of All Farmers Association of Nigeria (AFAN), Kabir Ibrahim, said at a time like this when harvesting is going on, food prices usually decline, but the trend changed in the last six years due to many factors, including CBN’s Anchor Borrower Programme (ABP).
He said the activities of ‘prime anchors’ sabotaged the programme, noting: “These prime anchors got large sums of money principally to finance a critical mass of smallholder farmers (SHFs) who should have served as out-growers, producing what the prime anchors would directly off-take. But they opted to go to the market to buy loans instead of making the SHFs they identified in the first place as their out-growers.”
He said this was against the principle of guaranteed minimum price (GMP), which prohibits buying by the government or any quasi-government organisation when there is inflation as such actions would exacerbate the situation.
Against all odds, the CBN spokesman, Dr Isa AbdulMumin, expressed optimism that the low rate of increase in the average price level in October compared to September 2023, was a pointer to the fact that the bank’s monetary tightening campaign and money market reforms are yielding the desired results.
Despite 0.61 per cent increase in the headline inflation, Isa remained upbeat that the CBN was headed in the desired direction in terms of achieving price stability.
According to him, available statistics showed that the first indication of deceleration in prices was recorded in September and further reforms in the money market, which commenced in October, had accelerated easing in prices as indicated by the substantial drop in month-on-month (m/m) changes recorded in October.
M/m change shows the intensity of inflation. It measures the strength of growth. In October, m/m change in inflation stood at 1.73 per cent, 0.37 per cent lower than the rate recorded in September 2023.
“Moderation in m/m changes in prices observed in the headline, food and core components of the consumer basket followed reforms in the money market and relative stability in the FX market,” he added.
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