ABDULWAHAB ISA 
Nigeria’s inflation has been on the rise despite CBN’s policy rate tightening measures. It peaked in March at 22.04 per cent compared to February figure of 21.91 per cent according to NBS’ latest inflation report. Analysts, experts offer prescriptions for taming the country’s monstrous inflation, as ABDULWAHAB ISA reports
Nigeria’s economy is under inflationary attack, fuelled by unrestrained increase in price of commodities and services. Increase in prices of goods and services has been on the upward trajectory, defying the Central Bank of Nigeria’s (CBN) measures. In the last one year, monthly inflation statistics from the stable of the National Bureau of Statistics (NBS) has been on a consistent rise. The prevailing high inflation is eroding value of money. Despite several policy interventions deployed by the CBN to tame and rein in inflationary pressure using rate adjustment policy, inflation refuses to be tamed. For instance, March inflation report released last week by the NBS showed inflation peaked at 22.04 per cent compared to February figure of 21.91 percent. The March figures showed an increase of 0.13% points when compared to February 2023 headline inflation rate. When analysed on year-on-year basis, headline inflation rate was 6.13% points higher compared to the rate recorded in March 2022, which was 15.92%. According to NBS, food and non-alcoholic beverages increased by (11.42%); housing, water, electricity, gas & other fuel (3.69%); clothing & footwear (1.69%); transport (1.43%); furnishings, household equipment and maintenance (1.11%); education (0.87%); health (0.66%); miscellaneous goods and services (0.37%); restaurant and hotels (0.27%); alcoholic beverage, Tobacco and Kolanut (0.24%); recreation and culture (0.15%) and communication (0.15%). Beyond food component that has seen increase in prices, services such as transportation, accomodations have increased exponentially.
Inflation as monster
One of the key functions of the CBN is price stability. So, anytime the country is in the grips of inflation, the CBN moves quickly to check it. In the last one and half years, CBN has been wrestling without any headway in the battle to tame inflation. At every bi-monthly Monetary Policy Committee (MPC) meeting, CBN Governor, Mr. Godwin Emefiele, had adjusted high interest rate . Every lending hike by the apex bank pales into zero effect. The MPC’s decision to hike rate with a view to curbing inflation remains unmet. Nigeria inflation remains stubborn and monstrous. It defies CBN pills. At the last MPC meeting that held March this year, Emefiele was asked by the media the reasons CBN policy measures failed to slow down inflationary pressure. His response: “We must appreciate the fact that between April and August 2022, we were seeing a very steep rise, steep slope in inflation rate in Nigeria. The rate of acceleration was quite steep. But by May, when global pressures on inflation began to show real signs, we also started to raise lending rate. All we did was an attempt to tame the aggressive rise in inflation . What we saw was because of the actions we had taken, the rate of increase in prices began to decelerate . For instance, between April and August 2022, the rate of inflation was about 5%. Between August and now, the rate of increase in inflation is only about 1.4% because of the tightening measure that has been adopted by the CBN over this period . What one would have expected was; because we were tightening, inflation should immediately begin to drop. It doesn’t happen that way . What you will find particularly in our environment is that as you are tightening or before you start, you see inflation moving aggressively and you begin a policy of tightening. What you want to do first of all, is to stem that rate of increase before you begin to see a reduction . Once you achieve this, the next thing you begin to see is that it should begin to come down as you continue your tightening policy . That is what we are doing. Whereas you will see that the transition mechanism in some economies is that it’s almost direct as you are tightening, you will see inflation trending downward directly. However, the rate of response differs from one economy to another. The MPC committee was confronted at this meeting with the fact that, the tightening measures had started to reduce the rate of inflation. We believe as we continue this process, the inflation will eventually begin to trend downwards.” However, he ruled out any possibility of immediate trending down in inflation due to number of factors. “Are we optimistic that it will begin to trend downward in May this year? No! We are not. This is due to a range of factors. Between now and May or end of this administration, we expect that subsidy will disappear . Subsidy removal has its own implication on inflation. The Monetary Policy Committee is not optimistic that prices are going to come down because of these measures. The committee feels that we continue to tighten and that’s what we did at this meeting . The important thing is for us , is to continue to look at what the margin is between policy rate and inflation. The margin has remained wide, which is negative real rate and in economies where you find negative real rates, it is a disincentive to investments. So, everything has to continue to be put in place by monetary policy authorities to see that we reduce that margin in the negative real rates by ensuring that inflation comes down . Whatever needs to be done to rein in inflation, we have to continue to do so. We will continue to adopt best strategy but we will do it moderately. Going forward, we are conscious of the fact that when you over tighten just as we have seen in the US and in Switzerland, it will begin to have contagious and negative impact on both banking system, financial soundness and financial system stability of the economy. That is what we want to do; we want to reduce inflation and not do it in the way it will upset the economy”. ” Unfortunately, that is where we are because of the uncharted territory we have found ourselves, arising from various geo-political tensions that we have seen all over the world. The strategy wil be how we will reduce the gap in negative real rate and to reduce that gap, we will continue to tighten moderately to ensure that we achieve the level of reduction for a somewhat prolonged period of time because if you do it more aggressively, it will have effects on the banking and financial system. It’s a difficult balance but that is the job we have to do and we have to do it correctly “, the CBN governor said.
Experts’ views
Inflation is biggest elephant in Nigeria’s economy. It reduces purchasing power of individuals and fuels poverty level. Analysts , Experts on economy have offered prescriptions on what could be done by the government to stem inflationary tide for desired economy growth to be attained. Uche Uwaleke is a professor of Banking and Finance at the Nassarawa State University and a former Commissioner for Finance in Imo State. He attributed the recent hike in inflation rate to the recent cash squeeze in the system. ” This may not be unconnected with the cash scarcity, which resulted in low demand for goods and services in view of the cashbased nature of the Nigerian economy. Recall that as a result of the cash scarcity and low demand, many traders, who deal in perishable items were forced to sell them at below purchase price or cost of production due to lack of storage facilities. “In my opinion, the use of cash scarcity to stifle demand is not a sustainable way to tackle inflation as it hurts economic growth and could lead to loss of jobs, thereby fuelling unemployment. Going forward, the CBN should ensure that measures are put in place to ease the cash crunch while gradually implementing its cashless policy”, he prescribed. Speaking to Sunday Telegraph, Financial Analyst, Mr. Gabriel Idakolo, attributed Nigeria’s high inflation, especially food component inflation to a number of factors ranging from insecurity to natural disasters. He said: “Food inflation is as a result of many factors, namely, insecurity, natural disasters, high cost of production, scarcity of foreign exchange to import components of food production e.t.c. The government, through the CBN should strengthen the intervention programs like the Anchor Borrower Initiative, rice revolution to mention a few. We should also focus on reducing logistic challenges occasioned by insecurity and limit farmer herder crisis that had led to reduced production in the past seven years”. “Nigerias inflationary pressures defied all anti-inflationary policy measures as is currently the case. Inflation is driven by multiplicity of factors that come under the umbrella of policies and market governance. Nigeria’s productivity challenge is structural, steep and inflationary. The low productivity of the agricultural sector is driven by low quality inputs, poor value chain development, absence of value-addition, low penetration and lack of technical capacity. All have combined to promote consistent rise in food inflation and have not allowed economic policies to yield positive results",he said. According to Idakolo, major challenges to food inflation are the fact that Nigeria is highly dependent on imported food items and other basic items. This makes the country susceptible to import related inflation. The Political leaning of economic policy makers like the CBN has also damaged the structural fabric of the economy. The illegal over use of the ways and means advances to fund the Federal Government has added in no small measure to inflationary pressures." "In the light of the above, continuous hike in interest rates cannot stem inflation because of lack of absorptive capacity and endemic poverty. Finally, as stated above, the re-engineering of the agricultural value chain, increased focused on agricultural intervention that is apolitical, and government determination to increase inflow of foreign investment, transparency in Nigeria’s crude oil production and improved ease of doing business are some of the major solutions to combating Nigerias stubborn inflation”, he said.
