The global economy is currently uninspiring as it is still under the siege of inflation – a spike in over 9% globally – which is worsening purchasing power and dampening economic outlook of countries.
Although each country is experiencing uncommon inflationary pressure, the phenomenon has both positive and negative effects on economic growth. Inflation is defined as the rate at which the value of a currency is failing and consequential general rise in prices of goods and services.
As of today, the economies of both developed and developing nations are under the weight of demand pull inflation and cost pull inflation. With inadequacy in supply of gas and disruption in meeting demands of certain foods items, the whole world is under the excruciating pains of global energy and food inflation rising cost and demand trend. This is partly caused by the Russia-Ukraine war.
For instance, many African countries are facing inflationary pressures with devastating impact on their people. This inflation’s exogenous pressures continue to impact African economies with reference to Ghana 33.9%, Rwanda 20.4%, Uganda 9% and South Africa 7.8%, respectively.
Conversely, aforementioned sub African countries and others in the continent contend chiefly with food inflation that is taking away meals from homes. It is also the leading factor against good nourishments.
Unfortunately, my dear nation, Nigeria, is not spared from the hard knocks of inflation. Just recently the country’s National Bureau of Statistics (NBS) released Consumer Price Index (CPI) report that showed that Nigeria’s CPI rose by 20.52% year-on-year in August 2022.
The Consumer Price Index (CPI) and the Whole Sales Price Index(WSPI) are the most commonly used inflation model. Nevertheless, Nigeria’s latest CPI showed that Africa’s biggest economy reported a spike in inflation at 20.52% in August 2022. This latest report indicated inflation is in its seventh months rise trajectory’s. This high record was last witnessed in 2005, 17 years ago, at 24.3% highest level.
According to the NBS, the rise in food inflation was caused by increases in prices of bread and cereals, potatoes, yam and other tuber, fish, meat, oil and fat.
The report noted that the average annual rate of food inflation for the 12-month period ending August 2022 over the previous 12-month average was 19.02%, which was a 1.48% decline from the average annual rate recorded in August 2021 (20.50%). Sadly, what this means is that Nigerians have had to contend with upward trajectories of food inflationary pressures.
The report shows that the increases in prices of gas, liquid fuel, solid fuel, passenger transport by road, passenger transport by air, fuel and lubricants for personal transport equipment, cleaning, repair and hire of clothing have all contributed to the hardship people go through on daily basis.
This has been a big challenge to Nigerians as well as reducing their access to basic food items and limiting them from other non food items.
With the current high inflation in the country, how can the Central Bank of Nigeria (CBN) being the authority to monitor, guard and keep inflation at bay, save us all. Even though we acknowledged the fact that inflation is a global phenomenon, nations across the globe are taking deliberate and desperate measures against it; with a lot of locally suitable ideas to save their people and their economies.
While not envying the current CBN managers, we urge the apex bank CBN to get it right in its fight against inflation. And for us, what has become clear is that the recent CBN monetary policy rate of 14% to fight inflation is not working. Rather it is compounding the situation with lots of uncertainty around the value of the naira.
The naira has continued to nose dive from N710/$1 to an all-time low of N720 to a dollar, eroding the purchasing power of citizens. The persistent currency depreciation is the major factor in the general increase in the cost of production.
Nevertheless, the CBN is very much aware of this which is why it has been pushing for greater export so as to earn more forex; our import dependence is a disruption to the naira’s stability. However, CBN’s hackneyed policy intervention and poor Monetary Policy Committee (MPC) rate and tightening measures cannot bring down inflation figure. The issue is structural and influenced mostly by the cost of importing foreign products as well as petroleum products.
In the light of this, what needs to be done? As the CBN prepares for its next MPC’s meeting in a couple of days from now, many analysts are suggesting another round of interest hike. The World Bank has warned central banks across the world to stop further rate hike that could lead to global recession. We agree that rate hike cannot be used to fight Inflation.
Rather, the government needs to formulate and implement complementary monetary and fiscal policies aimed at boosting food supply as well as reducing firm’s cost of production.
Another solution is addressing the issue of insecurity at the farm gates, as well as limiting the excesses of middle men.
Further more, the CBN’s policy target in the export sector through programmes like the FX200 and other initiatives must be sustained beyond the current apex bank handlers.
Nigerians are hoping that CBN in its next MPC’s meeting would come out with practical strategic policies to address inflation conclusively.
Olamilekan, political economist, writes from Abuja via [email protected], 08107407870, 080738144
