Dissecting Nigeria’s rising inflation

According to the latest figures from the National Bureau of Statistics (NBS), in January, the headline inflation rate increased to 29.90 percent relative to the December 2023 headline inflation rate, which was 28.92 percent.

The NBS said, looking at the movement, that the January headline inflation rate showed an increase of 0.98 percentage points when compared to that of December 2023.

“Similarly, on a year-on-year basis, the headline inflation rate was 8.08 percentage points higher compared to the rate recorded in January 2023, which was 21.82 percent.

“This shows that the headline inflation rate (on a year-on-year basis) increased in January 2024 when compared to the same month in the preceding year.

“Furthermore, on a month-on-month basis, the headline inflation rate in January was 2.64 percent, which was 0.35 percent higher than the rate recorded in December 2023 (2.29 percent).

“This means that in January, the rate of increase in the average price level is greater than the rate of increase in the average price level in December 2023,” it said.

The challenge of spiralling inflation and how to stem the tide has been central to stakeholder engagements, both in government and private enterprises, in recent times.

The Central Bank of Nigeria (CBN) governor, Mr. Yemi Cardoso, while presenting the communiqué from the last monetary policy committee meeting held on Feb. 27, said food inflation increased to 35.41 percent from 33.93 percent.

According to him, core inflation (headline less farm produce and energy) rose to 23.59 percent.

He said the leading factors driving inflationary pressure included rising energy costs, high fiscal deficits, and lingering security challenges in major food-producing areas.

The increasing inflation has the potential to erase the success of President Bola Tinubu’s economic reforms, which serve as disincentives for foreign investors, hence the CBN’s interventions to stem the drift.

The apex bank has initiated a raft of inflation-targeting frameworks.

They were adopted by a Monetary Policy Committee meeting (MPC) to further raise the Monetary Policy Rate (MPR) by 400 basis points to 22.75 percent from 18.75 percent.

Cardoso said the move followed the success recorded in slowing down inflation in the past using the same mechanism.

Stakeholders, however, say the removal of petrol subsidies, closely followed by the monetary policy decision of floating the naira, as done by President Bola Tinubu, was largely responsible for the spiralling inflation.

“The president already took some sensitive policy decisions, even before appointing the CBN governor and the finance minister.

“Floating the naira was a major error that has exacerbated the inflationary trend and caused the people so much pain,"  said Mr. Okechukwu Unegbu, a former president of the Chattered Institute of Bankers of Nigeria (CIBN).

He urged the government to look beyond the Organisation of Petroleum Exporting Countries (OPEC) price regime fixed by the oil cartel while exporting Nigeria’s crude oil.

“Nigeria should do something about pricing its oil in Naira. We should leave OPEC and price our oil independently,” he said.

Unegbu also advised that the government not try to implement economic prescriptions by the Britton Woods institutions and produce indigenous solutions to the nation’s economic challenges.

“If inflation can be addressed, if we produce more food, things will improve. It will also address the issue of “dollarization''of the economy,’’ he said.

According to an economist, Prof. Ken Ife, the fact that the CBN adopted inflation targeting as a basis for further tightening monetary policy rates was an indication of how seriously the government took the country’s rising inflationary trend.

Ife, however, said that the support from the fiscal authorities was crucial to achieving monetary policy results.

“The CBN says it is going for inflation targeting, but there should be more support from the fiscal authorities because a lot of the issues with the economy are not really monetary.

“We have N500 billion going for social intervention annually; the money does not go into the productive sector,” said Ife, who is the Lead Consultant on Private Sector Development to the ECOWAS Commission.

Ife said that the import-dependent nature of Nigeria’s economy was a major fuel for inflation and weak naira in the foreign exchange market.

According to him, not much has changed in terms of the structure of the economy over the years.

He said that Nigeria was part of an international division of labour, which confines it to the provision of raw materials and consumer of finished products.

“Any attempt to add value to our exports is usually met with stiff resistance.

“When a country is import dependent, it becomes so vulnerable to any external, global headwind, and it affects the economy

“The mortgage crisis in America and the Russian-Ukrainian war affected us because we are import-dependent. What we have is imported inflation,” he said.

He said that the importation section required four billion dollars monthly to import goods and services into the country.

“But because we have excess liquidity in the system, speculators are simply keeping the dollar as a store of value.

“They are now betting on the Naira, and the forward bet on the Naira is that it will continue to go down.

“Everybody keeps holding the dollar and using the dollar to trade with the expectation that the Naira will continue to fall. If the expectation is that the Naira will appreciate, people will quickly sell dollars,’’ he said.

Dr Chijioke Ekechukwu, an economist, said that while many countries were having their inflation rate reduce month-on-month, Nigeria’s inflation rate has continued to rise because of volatile exchange rate regime.

He said that standard of living had dropped to the lowest ebb.

“Cost of living has become increasingly unbearable, crime has taken over the entire country, and investors are afraid to venture into the country.

“Companies are shutting down and leaving the country and jobs are lost every day,” said the past president of the Abuja Chamber of Commerce and Industry (ACCI).

He also said that the country’s external reserve was being eroded by inflation.

“The government has to be very decisive as a matter of urgency to remedy the ailing economy by ensuring that the exchange rate improves to less than N800 to the dollar.

“The exchange rate must be stable to enable planning and to restore confidence in the economy,” he said.

He advanced use every possible avenue to diversify the country’s export base, even as he also advised it to ensure the country’s crude oil sales met the OPEC quota of 1.8 million barrels per day.

The Federal government and labour are in talks for increase in the minimum wage as part of the measures to increasing workers purchasing power.

But Ekechukwu says rather more forex earning and increased productivity could strengthen the workers’ financial muscle through deflation, a situation when consumer and asset prices decrease over time and purchasing power increases.

He said the government should ensure that the revenue from crude oil sales comes in on a daily basis through the Central Bank of Nigeria (CBN).

“If we sell our exports on a daily basis, we must get the revenue on a daily basis. The revenue must come through the CBN, and the apex bank must receive and distribute such revenue almost immediately.

“But if we have inflow coming in as revenue and the CBN is not seeing it, the NNPC is selling but we do not know where the money is going to, there will be shortage of forex.

“We need a situation where we earn forex on a daily basis and have excess of it in the market for both the banks and the Bureau of Change,” he said.

According to him, the federal government should also initiate a deliberate policy of curtailing importation so that the country can consume only what it can source locally.

Ekechukwu said that such a step would drastically reduce the demand for the dollar and other foreign currencies.

He criticised the idea of unifying the dual exchange rates and floating the naira, as done by Tinubu, without strengthening the nation’s export base and urged the Federal Government to revisit the policy decision.

“Floating the naira when your balance of trade is heavy on the negative side was ill-advised.

“We were not prepared with enough in our foreign exchange reserves. We did not have enough revenue from foreign exchange to float the naira.

“If possible, the policy should be reversed so that we can go back to moderating the foreign exchange market,” he said.

Ekechukwu also advised that payments of fees to foreign universities should be curtailed.

“There should be a deliberate policy to reduce payments to foreign universities,” he said.