Nigeria’s headline inflation closed 2023 slightly below the 30 percent market projected by many economists and research organisations, including KPMG.
But the slower increase, which puts the headline inflation at 28.92 per cent as per data released by the National Bureau of Statistics (NBS) yesterday, is not enough to calm the rising nerves over the outlook of general price change.
Economists and allied professionals have now warned that unless urgent steps are taken to stabilise the foreign exchange (FX) market, the falling naira is a prelude to a more precarious year.
Naira movement against other currencies has remained on the slope since the beginning of the year, trading at about N1260/$ at the black market yesterday. At the official market, the local currency has consistently crossed the N1000/$ mark, a warning the currency could tank in the coming months.
KPMG had pegged the headline inflation at 30 per cent on the back of fuel subsidy removal and the unification of the foreign exchange market, which saw the naira falling by 50 per cent at the official market.
“Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalisation may drive headline inflation to about 30 per cent by December 2023,” KPMG said then.
The NBS, in its consumer price index (CPI) reading for December, said the headline inflation rate showed a year-on-year increase of 28.92 per cent when compared to the November 2023 headline inflation rate which was 28.2 per cent.
According to the report, the food inflation rate was 33.93 per cent on a year-on-year basis, which was 10.18 per cent points higher compared to the rate recorded in December 2022 (23.75 per cent). The rise in food inflation on a year-on-year basis was caused by increases in prices of bread and cereals, oil and fat, potatoes, yam and other tubers, fish, meat, fruit, milk, cheese and egg.
Consistently rising inflation has been a major challenge facing Nigeria over the years as efforts by the government to tame it have failed to achieve the desired result.
Experts have blamed past government policies which they say fuel rather than fight inflation. An example is the controversial ways and means advances by the CBN to the federal government, which is said to increase liquidity.
Providing some perspectives on how Nigeria can bring down inflation, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the major cause of inflation is the energy crisis. He is however happy that there is an indication of increased domestic refining of petroleum products.
He said: “If we can scale up our refining capacity either at the private sector level and other investors or at the government level, we will see some reduction in energy cost if we can achieve some level of reduction that may impact positively on efforts to bring down inflation.”
He said it is gratifying that the CBN has said it will not go the way of the former administration as far as ways and means financing is concerned which was a major driver of inflation.
“If we make progress in the securitisation that has been done and they can sell some of that debt to the public to suck in some liquidity that may also have some moderating effect on inflation.
“If we can do something about forex, which is also a major driver of inflation, we will see some positive results,” he said.
He said another area that the government needs to pay special attention to is security.
“We need to do something about security because presently our farmers are not able to go to farms because of insecurity. If something can be done to bring some dramatic improvement in the security situation, that can also help,” he noted.
Another analyst, Prof. Jonathan Aremu, said he was not surprised that the inflation rate grew very slowly in December 2023 given the scarcity of cash Nigerians experienced during the period.
“Nigerians were denied access to their cash and that limited their purchasing power. You will agree with me that many agricultural products are perishable and when people are not coming forth to buy, they are sold at give-away prices,” he said.
He said if that is a strategy the Central Bank of Nigeria (CBN), is adopting to drive down inflation, it is a wrong one, adding that it is destructive to the production sector.
On his part, Prof. Godwin Oyedokun of Lead City University, Ibadan, said he is not bothered about the inflation rate not hitting 30 per cent.
His words: “Even a one percent increase is not good for us. The truth is that we are a consuming nation, we are not producing enough to satisfy our needs.”
Oyedokun said that one area this government should focus on is to encourage production.
The National President of the All Farmers Association of Nigeria (AFAN), Kabir Ibrahim, said the high rate of Food inflation is caused by the government failing to obey its own rules.
According to him, the purchase of rice to give to the legislators for distribution to their constituents is mere politics and negates the principle of guaranteed minimum price (GMP), which he said “Does not cause any government intervention in the purchase of food items in the middle of general inflation because such will exacerbate food inflation. You can see that food inflation is at an all-time high today at over 33 percent.”
A frontline economist, Dr Ayo Teriba said Nigeria’s rising inflation may continue unabated unless problems associated with exchange rate volatility are tackled.
According to him, a situation where the naira is still flopping is an indication that the country will not witness any form of deflation soon. Deflation is a decline in the prices of goods and commodities.
He stressed the need for Nigeria to beef up its reserve to help absorb capital flows and stabilise the exchange rate.
“Inflation is a shadow of devaluation and once it occurs, it passes to inflation. Inflation cannot decelerate without a stable naira. Decelerating inflation needs a stable exchange rate.
“We need reserves that will stabilise the exchange rate and curb inflation. This is the only way we can lift the standard of living, increase the real wage of workers, and ensure pump prices do not rise,” he said.
Also speaking, the Chief Executive Officer of Cowry Asset Management, Johnson Chukwu, said the two major factors fuelling inflation are the high cost of food and rising insecurity.
He pointed out that security challenges in the country have led to an acute rise in food prices and a substantial reduction in food production.
According to him, even core inflation which is expected to moderate is worsening, causing persistent hikes in commodity prices, and shrinking the purchasing power of average Nigeria.
He said: “Local currency is still depreciating until we see stability in the exchange rate, it will continue to affect core inflation. Again, this is planting season and insecurity in major parts of the country is worsening. The expectation of increased food production in Nigeria will not materialise.
These are the key factors fuelling rising inflation.”
