Beatrice Samuel just like most Nigerians laments every time she goes to the market because of the incessant increase in prices of food items.
This is coupled with the fact that she still has other utility bills to pick such as water, electricity, cooking gas, and fuel, which are also on the increase.
The removal of fuel subsidy and devaluation of the naira by President Bola Tinubu in a bid to revive economic growth has still not yielded the desired results.
Nigeria’s inflation rate rose to the highest in December 2023 from the latest Consumers Price Index (CPI) and inflation report from the National Bureau of Statistics (NBS).
Nigeria’s headline inflation increased to 28.92 per cent in December 2023, which was 0.72 per cent points higher compared to the 28.20 per cent recorded in November 2023.
The NBS said on a year-on-year basis, the headline inflation rate in December 2023 was 7.58 per cent higher than the rate recorded in December 2022 at 21.34 per cent.
Food inflation was the highest components for December 2023 accounting for 33.93 per cent on a year-on-year basis, this was 10.18 per cent points higher compared to the rate reported in December 2022 at 23.75 per cent.
The report said on a month-on-month basis, the food inflation rate in December was 2.72 per cent, which was a 0.30 per cent increase compared to the rate recorded in November 2023 at 2.42 per cent.
The NBS attributed the increase in the headline index for December 2023 on a year-on-year basis and month-on-month basis to the increase in some items in the basket of goods and services at the divisional level.
It said these increases were observed in food and non-alcoholic beverages, housing, water, electricity, gas, and other fuel, clothing and footwear, and transport.
Others were furnishings, household equipment and maintenance, education, health, miscellaneous goods and services, restaurants and hotels, alcoholic beverage, tobacco and kola, recreation and culture, and communication.
However, experts are of the view that additional measures are needed to address the major factors driving the inflationary pressure in Nigeria identified by the NBS.
These experts also agree that addressing the increasing inflation cannot be solved by monetary policy reforms alone such as increasing the monetary policy rate.
Prof. Uche Uwaleke, President of Association of Capital Market Academics of Nigeria, said supply disruptions and the rising cost of production need to be addressed as measures to reduce inflation.
Uwaleke, Nigeria’s first professor of capital market, said that monetary policy tightening of the Central Bank of Nigeria (CBN) alone may not address inflation.
Monetary tightening is the policy in which interest rates are increased by the central bank and money supply is reduced with the aim of reducing inflation.
“The government needs to formulate and implement complementary fiscal policies aimed at boosting food supply as well as reducing firm’s cost of production occasioned by the high cost of energy and transport,” Uwaleke said.
He said inflationary pressure in Nigeria was more on the food component reflecting the impact of cost-push factors.
They arose especially from the high cost of electricity and fuel as well as flooding and insecurity, which have continued to impact food supply.
Uwaleke said, “There’s also the demand side occasioned by increasing money supply from rising FAAC allocations, fiscal dominance, and CBN’s Ways and Means, which feed into high exchange rates.
“Given these demand and supply inflation dynamics in Nigeria, both monetary, fiscal, and trade policies must be properly coordinated to boost production and tame inflation.”
He encouraged state governments to utilise the increased Federation Account Allocation Committee (FAAC) allocation strategically by focusing on productive activities that could drive economic growth and societal development.
“On its part, the CBN should ensure that direct advances to the Federal Government in the form of Ways and Means are curtailed within the ceiling specified in the CBN Act,” he said.
Dr Ayo Anthony, an economist, said Nigeria’s exchange rate management needs to be revisited and the cost of production must be looked into before inflation can come down.
“Our exchange management should be revisited because most of the items which are finished goods are imported even if they are not imported the apparatuses used for their production are imported.
“As we keep depreciating our naira, the prices will definitely keep increasing. The cost of production must be looked into.
“Inflation in Nigeria is more of cost-push inflation, and what are the factors responsible for the increase in cost apart from exchange rate, and energy cost; diesel and petrol are on the high side now.
“If the government can address these two major factors, all things being equal, the inflation rate in Nigeria should be coming down,” he argued.
Anthony explained that inflation in Nigeria is not a monetary issue, a situation is said, explains why the monetary policy changes have not made desired impact.
“Assuming inflation in Nigeria is a monetary issue that is when all the monetary tools can be used to check inflation.
“So, with all these monetary policy changes every quarter, you can see it is not affecting inflation because those are not the factors affecting inflation.
“If they increase the monetary policy rate to 25 per cent, inflation will not be affected because what is affecting inflation is not monetary issues. It is a supply-side issue.
“Another thing the government can do is to boost aggregate supply by reducing interest rates and also giving concessional loans. Although CBN is doing it now we are yet to see the impact,” he said.
Prof. Ken Ife, a development economist and public policy analyst, said the three types of inflation- cost-push, demand-pull, and imported inflation are all active in Nigeria.
Ife explained that cost-push inflation is coming on the back of increased cost of inputs by manufacturers of goods and services caused by increased transportation and energy costs.
He said the imported inflation was driven by the cost of forex which had doubled and had become difficult for importers to get while the demand-pull inflation was coming from the demand for Nigeria’s products from abroad.
The professor said out of the five components of inflation, the foodstuff basket index was the highest of all the components.
“You have the foodstuff basket index and it is the highest inflation. It is five points above the headline inflation which is now 28.92 per cent while the food basket inflation is 33.93 per cent.
“Food inflation has remained at a very high altitude for more than three years, which means that whatever is happening to Nigeria’s food equation is systemic.”
Ife said one way to address the increasing inflation, especially the imported inflation, is for the government to have a steady forex rate.
“We have to discourage imported inflation by making sure we rise to displace those imported goods, and how do you rise to displace them? By adding value to the crops we produce.
“Once we start processing our goods, we now have the chance to control the import from abroad because you now have competing goods of good standard that are produced.
“If you prepare good quality products by adding value and maintaining standards, that will reduce the appetite of people to import goods. That is the only way and those who want to export will have to pay taxes,” he stated.
He also said the federal government must tackle insecurity, a major causative factor of rising food costs; and mitigate the rising transportation cost by promoting the use of compressed natural gas vehicles.
“There are many other things you can use to reduce inflation. For example, the government allowing people to enter the power market to produce cheaper electricity for themselves.
“Even at the state level, you have clusters where companies can come together to manufacture to reduce overhead and have aggregation centres to reduce the cost of transportation. These are small measures that can help,” he said.
Ife also agreed that monetary policy could not be used alone to fight inflation by increasing interest rates.
Experts say keeping these steps in the front burner will go a long way addressing Nigeria’s growing inflation headache.
