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As expected, Nigeria’s inflation rate accelerated to a new 17-year high of 21.09 per cent in October, 0.32 per cent points increase from 20.77 per cent recorded in September, raising concerns for Nigerians already battling with weak household incomes and import pass-through costs.
Already, there are concerns that the country’s inflation trend may not have reached its peak considering that triggers like intermittent fuel scarcity witnessed during the review period, stubbornly high gas and energy prices, lingering currency pressures and build-up of higher naira liquidity as the campaign season starts, are yet to be addressed.
According to the latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) yesterday, food inflation also surged to 23.72 per cent in the review month, which is 0.38 per cent higher than the 23.34 per cent rate recorded in the previous month and 5.38 per cent higher compared to the 18.34 per cent recorded in October 2021.
Indeed, higher inflation and exchange rate volatility are associated with higher pass-through of exchange rates into import prices. Lingering currency pressure has led to higher prices in the last few weeks.
On a month-on-month basis, the headline inflation rate moderated to 1.24 per cent compared to 1.36 per cent recorded in the previous month, but higher than the 0.98 per cent recorded in the corresponding period of 2021. The increase in the composite index was due to increases in the core and food inflation rate in the period under review.
According to NBS, the rise in the food inflation rate was caused by increases in prices of bread and cereals, food products, potatoes, yams and other tubers and oil and fat.
In his reaction, Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, argued that since the metrics on which inflation are calculated rely on weight averages of food and energy prices across 36 states plus the Federal Capital Territory (FCT), “it is suspicious to assume that the economy has recorded a decreased headline inflation on a month-on-month basis, based on the same food and energy index that has been heavily impacted by floods across the country.”
It is important to note that within the last 12 months, the headline inflation, according to NBS, has risen by 5.09 per cent, precipitating a four per cent increase in the Monetary Policy Rate (MPR), and a widening of the asymmetric corridor to 800 basis points from the 700 basis points recorded a year ago.
“This is because the difference between the standing deposit facility rate (SDFR) or the overnight rate at which deposit money banks place money at the CBN, and the rate at which CBN lends money to deposit money banks, has risen from five per cent for SDFR to 8.5 per cent, while the Standing Deposit rate (rate at which the CBN lends money to the deposit money banks) was risen from 11.5+1 12.5 per cent to 15.5+1 to 16.5 per cent,” he explained.
Emmanuel added that as this spread widens, and capital becomes more expensive, the incentive for financial institutions to lend money to the real sector that has the capacity to raise production output, and reduce the shocks from demand pull inflationary buffers, suffers.
Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, added that the new inflation number confirmed that “the very difficult state the CBN’s demand side actions are beginning to subject the economy into.”
Olayinka noted that even when it was obvious that the inflation experienced in Nigeria is driven largely by supply side factors, the apex bank has used more demand side management tools to deal with it, since the fiscal authority is unable to manage the situation.
“What we are seeing now is an indication that some of the demand side actions of the CBN are beginning to filter negatively into the supply side of the economy, thereby aggravating the already bad supply side situation.
“This is what happens when economic agents are compelled to engage in a prolonged re-pricing of assets across markets and instruments, including loans and advances by banks. It is really a difficult time for Nigeria, as monetary and fiscal authorities appear to be helpless in dealing with the situation.
“It is also one of the reasons CBN is trying to redesign the Naira, in a way to curtail demand side pressure from the use of illegal money, as further hike in MPR by CBN could endanger the economy.”
He said the only way out is to allow the economy to run its full course of adjustment, which will naturally come with short run adjustment pains.
However, he stated that in the long run when all factors become variable, the country will definitely benefit from long run normal prices.
Similarly, Prof. Sheriffdeen Tella said he was not surprised that the inflation rate has jumped to as high as 21.09 per cent.
The professor of Economics at Olabisi Onabanjo University, Ago Iwoye, Ogun State, said the high inflation rate was expected – be it marginal or significant – particularly after the massive depreciation of the naira to over N900 to $1 in the black market.
He explained that the development is just as the rebound would have effects of lowering cost and selling price, if it is continuous and sustainable.
Tella equally noted that the price of food would not come down easily due to continued insecurity, and now aftermath of flooding.
“It is unfortunate that the situation is getting worse by the day. Many households have to grapple with the high inflation rate that currently hit the roof of 21.09 per cent. This is worrisome and not encouraging.
“The nation’s currency is plummeting against the dollar every day. Flooding is ravaging the states, while insecurity is escalating. The trend is not good for the economy; it is not good for the citizens,” he said.
He urged the government to put an end to insecurity, compensate flood victims while the Central Bank of Nigeria should rise to the occasion to put a stop to the Naira free-fall.
Concerned Nigerians, however, called on the Federal Government to take drastic measures such as encouraging more production activities to address what they termed the galloping inflation the country is experiencing.
Chief Executive Officer of Capital Multimedia Limited, Salomey Eferemo, said the rising inflation is worsening the poverty index.
Eferemo blamed the lack of production capacity for the spike. “We are not producing; we have a mono economy. That is not good for us, and more of our people are being pushed into poverty.
“Government needs to take deliberate action to stem this crisis. We need to invest in production. We need to invest in the education of our people so that we can stimulate production and inflation will naturally slow down.”
On his part, the National President of All Farmers Association of Nigeria, Kabir Ibrahim, said: “We must incentivise the farmers to do year-round production since we cannot import from anywhere, because the food inflation is actually global.
“The farmers should embrace System of Crop Intensification (SCI), science, Technology and Innovation (STI) and Agricultural Biotechnology systems,” he offered.
