Nigeria’s 19.64% July Inflation Troubling, Beats Economic Indices – Experts
As Nigeria faces other macroeconomic challenges including its weak currency which pressure up cost of living, the country’s headline inflation has jumped to a 17-year high.
Monday’s report by the National Bureau of Statistics (NBS) revealed inflation rate rose to an all-time high of 19.64 per cent in July this year, the highest since September 2005, from 18.6 per cent in June.
Food inflation also increased to 22.02 per cent, the highest since May 2021, driven by rising cost of bread and cereals, potatoes, yam, and other tubers, meat, fish, oil, and fat.
While other upward pressure came from gas, liquid fuel, solid fuel, passenger transport, garments, cleaning, repair, and hire of clothing, compared to the previous month, the July inflation went up by 1.82 per cent.
Analysts, who spoke with InsideBusiness, expressed their worries.
The heightened inflationary pressures in the Nigerian economy remain very troubling, the Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said.
According to Yusuf, who was the former Director-General of the Lagos Chamber of Commerce and Industry (LCCI), the major inflation drivers have not abated, if anything, it has become even more intense.
“These factors include transportation costs, logistics challenges, exchange rate depreciation, forex liquidity issues, hike in energy prices, climate change, insecurity in many farming communities, and structural bottlenecks to production,” he highlighted.
These are supply side issues, the CPPE boss said, stressing that any mitigation measures would have to be situated in the context of the factors.
“The accelerated fiscal deficit financing by the CBN (Central Bank of Nigeria) is a significant inflation driver. The financing of fiscal deficit has been elevated to disturbing levels with huge implications for money supply and the consequent effect on inflation. CBN financing of the deficit is high-powered money and very inflationary. It is an inflation tax,” Yusuf explained.
He also explained that mounting inflationary pressures weaken purchasing power of citizens as real incomes are eroded; aggravate pressure on production costs; negatively impact profitability; erode shareholders’ value and undermine investors’ confidence.
Yusuf noted that in many cases, increases in production costs cannot be transferred to consumers as the implication is that producers are also taking a hit.
“This is more pronounced where the demand for the product is elastic. These are products that consumers can readily do without.
“Tackling inflation requires urgent government intervention to address the challenges bedeviling the supply side of the economy and the moderation of fiscal deficit monetisation,” Yusuf added.
On his part, Ikechi Agbugba, a senior lecturer at the Department of Agriculture and Applied Economics, Rivers State University, also expressed concern about the rising inflation rate, saying what he had observed beats economic indices.
He said, “The major index of inflation, that is, too much money in circulation, is not what we have on the ground now.
“I think what is happening is a general price increase which may be attributed to more people competing for a very few available commodities.”
According to Agbugba, the rising inflation figure is a wake-up call for vigorous agricultural development to enhance production, stressing that more production of food and raw materials for industrial production could be the way out.
“If Nigeria can utilize the opportunity to focus more on agricultural production that will enhance foreign exchange through exports, the country will be better for it,” the don asserted.
An Investment and Portfolio Analyst, Abel Ezekiel, expressed that the all-time inflationary hike of almost 17 years, would have a devastating effect on households and pressure organizations’ operational expenses that might have adverse effects on their bottom line.
He urged the CBN, as part of its statutory duty, to curtail inflation and ensure price stability.
“The CBN may embark on their traditional mistake or error of adjusting their MPR (monetary policy rate) ostensibly to tame spiraling prices, hence the mistake as we are not dealing with demand-pull inflation but rather cost pull inflation caused by FX scarcity and the energy crisis which drives running cost and ultimately output cost.
Responding to how the surging inflation rate will impact the investing public and their investment, Ezekiel said the effect was going to be multi-dimensional.
On the investing public, he said, households are reeling under the intense pressure of an increase in price which they have to contend with the same lower income, meaning stagflation, economic doom, erosion of purchasing power, and poverty thereby causing an increase in misery index, breeding insecurity and loss of employment.
“So, CBN has to adopt another option this time around of boosting credit to agriculture, farm machinery to enhance mechanized farming to bring down input and output prices.
“The apex bank also needs to ensure we have access to diesel, mainly used by manufacturing companies at a lower price, which is produced by neighboring countries like Niger, and Chad. So, why can’t our refinery refine this product locally to bring down the operational expenses of companies,” he said.
On their investment, he said it was definite that most companies’ bottom line would be seriously affected negatively if not well managed through cost-cutting measures to drive profit up.
Ezekiel said, “Lenders will demand higher interest on loanable funds which will also increase OPEX (operating expenses) as bondholders will also require a higher rate of return and drive investors away from risky assets such as shares.
“The overall effect is the downward movement of prices which we are already experiencing since May 2022 wherein Zenith Bank has dropped from about N25 to about N21, same goes for GT Bank, from N25 to about N20.40, MTN from an all-time high of N270 to N201 as of today (Monday, August 15) and same for Dangote Cement, BUA Cement, WAPCO (Lafarge Africa), among others.”
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