Experts blame insecurity, low production, forex as inflation hits 18.17%
Nigeria’s rate of inflation, which has maintained a continuous increase for more than a year, rose again in March, hitting a high of 18.17 per cent, according to data released on Thursday by the National Bureau of Statistics.
A number of experts interviewed by our correspondents said the development was troubling and blamed insecurity, low production and foreign exchange crisis.
In its Consumer Price Index report for March 2021, the NBS stated that the CPI, which measures inflation, was higher than what was recorded in the preceding month.
It said, “The consumer price index, which measures inflation increased by 18.17 per cent (year-on-year) in March 2021.
“This is 0.82 per cent points higher than the rate recorded in February 2021 (17.33 per cent).”
It explained that increases were recorded in all Classification of Individual Consumption by Purpose divisions that yielded the headline index.
On month-on-month basis, the headline index increased by 1.56 per cent in March 2021, which was 0.02 percentage points higher than the rate recorded in February 2021 (1.54 per cent).
The percentage change in the average composite CPI for the 12 months period ending March 2021, over the average of the CPI for the previous 12 months period was 14.55 per cent.
This represented a 0.50 per cent point increase over 14.05 per cent recorded in February 2021.
The urban inflation rate increased by 18.76 per cent (year-on-year) in March 2021 from 17.92 per cent
recorded in February 2021, while the rural inflation rate increased by 17.60 per cent in March 2021 from 16.77 per cent in February 2021.
The Director-General of the Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, said tackling inflation required urgent government intervention to address the challenges bedevilling the supply side of the economy.
“Mounting inflationary pressure is a troubling phenomenon. The March headline inflation of 18.17 per cent is the highest in four years. More worrisome is that food inflation has accelerated to 23 per cent,” he said.
According to him, the key drivers of the mounting inflation are currency depreciation, acute illiquidity in the foreign exchange market, rising transportation costs, agricultural output disruptions caused by growing insecurity, logistics challenges, hike in energy prices, climate change, and structural bottlenecks to production.
He said, “These are essentially supply-side issues. The major issues are cost and output-related. The solution therefore would have to be situated in the context of these causal factors.
“Rising inflationary pressures weaken the purchasing power of citizens as real incomes collapse; it accentuates pressure on production costs, negatively impacts profitability, and undermines investors’ confidence.”
According to Yusuf, it is not in all cases that high production and operating costs can be passed on to the consumers.
“The implication is that producers are also taking a hit. This is more severe where a product or service is faced with high demand elasticity. These are products that consumers can readily do without,” he said.
Analysts at Financial Derivatives Company Limited, led by Mr Bismarck Rewane, said the spike in the annual general food price level was an indication that output levels were below what was recorded in March 2020 (pre-COVID lockdown).
The analysts said, “We expect a further build-up in inflationary pressures in the coming months as a result of the planting season, heightening insecurity issues, currency pressures and high-powered money.
“Inflation rate above 18 per cent could prompt the CBN to adopt a tighter monetary policy stance at its meeting next month. As interest rates increase, we expect the marginal propensity to save to rise, thus reducing liquidity and tapering inflation,” they added.
A professor of economics, Babcock University and past President, Chartered Institute of Bankers of Nigeria, Prof. Segun Ajibola, said the inflationary pressure in Nigeria today was cost push and the only solution to this was to tackle the source which includes rising costs of inputs and infrastructures especially power among others.
He said, “This is being fuelled by the depreciation in the value of naira vis a vis dollar as most of the raw materials and other inputs are imported and the costs are annexed to dollar.
“For agriculture, the story is the same. Farm implements are imported and the costs are dollarised, likewise chemicals, insecticides and labour.
“Storage, transportation are all challenges to food crop farmers. The situation has been aggravated by the menace of the herdsmen, as farmers are either chased out of their farms or the farm produce destroyed.
“All these combined bounce on the eventual cost of the farm produce and the market prices of food. This explains the continued rise in food inflation in the country overtime. The implications are direct and clear.
A Professor of capital market at Nasarawa State University, Prof. Uche Uwaleke, said it was instructive to note that food was the critical component exerting the greatest pressure on inflation.
He said, “This may not be unconnected with insecurity in most parts of the country.
“Another thing to note is that inflationary pressure is more in the urban than in rural areas. This could be the consequence of poor transport infrastructure and logistics to convey goods from rural to urban areas resulting in high cost of transport made worse by high fuel price.
“The hike in electricity tariffs equally contributes to rising urban inflation.”
He said that the usual recommendation was to tackle insecurity.
“Time has come to take the issue of state police more seriously,” he said.
According to him, agriculture should be prioritised with emphasis on mechanised farming for increased output.
The Chairman of Foundation for Economic Research and Training, Prof Akpan Ekpo, said the inflation rate was worrisome and could become uncontrollable.
According to him, the inflation is caused by the increases in fuel prices, electric tariff, closure of the border, as well as increase in government spending due to COVID-19, which was increasing the debt profile.
“We are in big trouble. For the last one year inflation rate has been going up. It’s very bad for the economy and it will hit the poor more because the poor cannot go on savings to survive.
“We have passed our threshold which was 10 per cent. This shows that the real interest rate is negative, meaning there’s inconsistency between savings and investments.”
He stated that there was need to increase the supply of food production in the economy and to also reduce the import of refined products.
“We are importing almost all refined products which contributes to inflation, we should reduce our import. Government should also be careful about hike in electric tariff and PMS.”
A professor of economics at the Olabisi Onabanjo University, Ogun State, Sheriffdeen Tella, said the rise was expected with the depreciation of exchange rate further causing the price of other goods to rise.
According to him, the the inflation of exchange rate is the major cause, as well as the scarcity of foreign exchange.
He also noted that there was a global inflation which was added to the goods imported to Nigeria.
“The things that are imported are imported with their own inflation too coming from the country, because there’s global inflation. Also for the food sector, this is not the harvesting period and even if it was, there is the problem of the herdsmen.”
According to the immediate past President of the Abuja Chamber of Commerce and Industry, Prince Kayode Adetokunbo, the inability of government to stem insecurity had remained detrimental to the economy.