Over 20% Inflation Spike Is Bad Omen- Experts
Inflation at over 20 per cent is a bad omen and will impact negatively on the purchasing power of households, widen loan defaults and heighten non-performing loans (NPL), economic experts told InsideBusiness on Thursday.
The National Bureau of Statistics (NBS) had released headline inflation figures, which surged to 20.53 per cent rate in August from 19.64 per cent rate in July.
Food and core inflation rates also rose to 23.12 per cent and 17.20 per cent respectively.
In a chat with our correspondent, Abel Ezekiel, an investment and portfolio analyst, said the latest inflation figure is but a bad omen for the Nigerian economy.
According to him, the inflation hike will not only have an impact on the capital market but also on social, economic and political development of the country as well as the citizens.
Already, larger percentage of Nigerians are badly hit, worrying over the squeeze in the cost of living.
Tunde Wahab, a secondary school teacher in Ikeja Lagos said he can no longer live in Lagos following the rising prices of items which his salary cannot cope with.
“House rent has gone up, food prices surge everyday while the increasing energy price has also pushed up the transportation fares beyond my capability”, he said.
“I will relocate to Ilorin by the end of the year’, he concluded.
To Ezekiel, an investment analyst, the hike in inflation has no advantage at all, asserting that it will erode purchasing power, increase overhead, operating expenses (OPEX) and cost output, weakens currency, breeds insecurity, job loss and unemployment among others.
“What we have now has defied all government or intervention by the Central Bank of Nigeria (CBN). No more price stability for planning and budgetary purposes. Certainly, we have some level of crisis at hand if something drastic is not done,” Ezekiel said.
Considering Nigeria’s peculiar nature as a consuming nation, Ezekiel said nothing could be done as it would have a direct impact on the capital market.
He said, “Though capital markets provide an avenue to beat inflation but what we have now is cost push (inflation) whereby cost of operations of most of the quoted companies is already skyrocketing, which if care is not taken will eat deep into their bottom-line, leading to declaration of lower profit.
“Even bond holders will want a higher return on their investment. The consequence is inability by some of these companies to meet the payment of coupons leading to higher risk of default.”
He explained that the majority of households would be faced with the huge task of meeting their day-to-day demand for basic needs of foods, shelter, education, and others, thereby avoiding or reducing any urge of investment or savings.
“Even corporate bodies are inclusive. No wonder the market has for a long time now been moving southward. So all in all it’s a bad moment for the capital markets), Ezekiel said.
On his part, the Chief Executive Officer of the Pan-African Farmers Organisation (PAFO), Babafemi Oyewole, noted inflation as a global phenomenon currently affecting economic activities in most countries, and impacting both producers and consumers alike.
“For agriculture, historical data support the hypothesis that commodity prices generally rise during periods of inflation.
“Higher commodity prices will lead to increased demand for farm inputs such as seeds, fertilizer, livestock, farm equipment, etc., thus putting upward pressure on input prices, holding all other factors constant.
He noted for instance that following the Russia-Ukraine crisis, prices of fertiliser has tripled which might lead to lower productivity of farmers and increased food prices to the detriment of consumers.
“Inflationary pressures may hinder the farmers to pay back loans, particularly the anchor borrowers program and non-performing loans portfolio of financial institutions in Nigeria.
“The government should implement palliative policies and measures that will cushion the impact of inflation on both producers and consumers,” the PAFO boss added.
International Monetary Fund (IMF) early this week in a blog noted that rising food and energy prices are driving inflation, advising governments to tighten up monetary policy.
The Governor, CBN, Godwin Emefiele, had earlier said that the trajectory of inflation calls for drastic actions as inflation accelerated at a rate not seen in a long time.
“I am notably concerned about the debilitating effect of high inflation on the purchasing power of economic agents, its disruptive effect on productivity and distribution, and its exacerbation of unemployment, poverty and inequality.
“Apart from pressure from food prices and imported inflation, the monetary phenomenon in domestic inflation has become obvious, just as expectations seem to have also taken root,” Emefiele said in his personal note in the latest communique Monetary Policy Committee, communique.
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