In one of my appearances on a national television station lately, the programme anchor humorously asked me my take on the current state of the economy. l responded by saying the economy is not smiling. He burst into laughter, but agreed with me after my expository on why the economy is not smiling.
Without any doubt the world today is witnessing a retrogressive economic growth crisis that’s is not palatable for the poor.
This is especially with the global inflationary trends which analysts are attributing to the Russian – Ukraine war. For instance, there are soaring energy and food prices, with inflation of over 7.5% in the US and above 5% in Europe and the UK. If developed nations are already suffering from the stings of inflation, the rest of the world should get ready for a plague.
This is because inflation once let loose can destroy, with the poor as most hard-hit. With the benef if hindsight, a simplistic definition of inflation is the general rise in the prices of goods and services in a particular country, at a particular period, resulting to a fall of the value of money.
Thus, inflation simply devalues and weakens a country’s currency. It also erodes the purchasing power of income and wages available for workers to spend on desired needs.
Recently, the National Bureau of Statistics (NBS) released the February 2022 Inflation report’s. The report detailed the Consumer Price Index (CPI) which measures inflation in the country.
According to the NBS, the Consumer Price Index increased by 15.70 per cent (year-on-year) and 1.63 per cent points lower compared to the rate recorded in February 2021 (17.33 per cent).
The report asserted that the latest inflation figure of 15.70 percent can be linked to the scarcity of Premium Motor Spirit (PMS), dollar scarcity, firms closure and naira depreciation.
Instructively, the inflation rate is far higher than the 13 per cent inflation target for 2022 by the federal government.
The 2022 budget target of 13 percent rate is a vital projection and assumption from its N17trillion estimates. Equally, the World Bank, with which the Nigerian state aligns as its unofficial economic counsellor, predicted that Nigeria might have the seventh-highest inflation rate in Africa.
This Brettonwood Consensus Institution cited the increasing prices and diminishing welfare of Nigerian households, according to the Nigeria Development Update report for 2022.
Consequently, one is not surprised at the report going by the many years of structural decay and successive government’s poverty of economic governance both in fiscal and monatery policies deployment to address the country’s economy woes – a very sad situation where we continue to struggle with double-digit inflation.
Also, the Central Bank of Nigeria (CBN) promised from its projection that the country’s inflation rate would drop to a single digit range of 6–9 per cent by end of 2022.
Interestingly, the apex bank in recent time has been deploying strategic policy that cuts across multi-sectorial macroeconomics and microeconomic variables.
This is not to envy the CBN management and its recent policies designed to boost the economy.
Remarkably, the CBN has shown a sense of addressing the monster called inflation in Nigeria. However, as we all know, inflation is a disease that disproportionately afflicts the general health of a nation.
Nonetheless, many economists remind us to look back into history on how inflation can be dealt with, especially as proposed by two famoust groups.The first are the Volcker monetarists that believe in raising interest rates to choke expenditure as well as to discourage inflationary flames in the country.
Paul Volcker, the US Federal Reserve chair who quelled the hyperinflation of the 1970s with sky-high interest rates is famous for this.
The second group are Gradualist monetarists that believe that with little or no increase in interest rate wages must be protected
and managed without consequences on workers. Their stand is in protests to counter the proposal of the Volcker monetarists group scary sky high interest rate and anti-wage increased.
Neverheless, the two groups are the two influential monetarists that dominate economic discourse on taming inflation.
Critically, inflationary situation in Nigerians can be understood beyond the two positions mentioned earlier.
Regreattably, inflation in this part of the world arises as a result of, first, the expansionary target growth of businesses through hike in prices of goods and services.
Second, the poor infrstructural facilities to aid businesses in terms of electricity, better transport logistics, dependency on foreign technology, and middlemen role in distribution network.
Third is multiple taxation from government at the federal and sub-national levels.
Fouth, importation and dependency on foreign products and services.
Last is the persistent insecurity that is increasingly affecting investments in the country.
One cannot but agree that the foregoing contribute immersely to inflation in Nigeria.
However, we cannot rule out the interest rate threat to supply of money and credit facility. Arguably, the centrality of this piece is that the expansionary tendencies of businesses for growth and profit drive led to increas in prices of goods and service that is out of reach of people. And these are people whose wage remains stagnant.
To this end, what is the alternative to deal with inflation without deepening poverty in Nigeria? What can be done to salvage the situation?
First, we must all accept the fact that to deal with inflation, the CBN must have a grip on the supply of money and credit must not be let loose. In this wise, CBN’s stand to create new money must be justified through steady interest rate rise. This must go with a target to boost investment and employment generation.
Second, we need not to remind CBN that inflation tends to devastate the poor. Poingnantly, it will be a great service if the CBN focuses in curing inflation that tends to foster economic inequality and divide our society.
Third, the CBN support for the real sector has been tremendous and which no one can fault but it’s time to prioritise. With billions given to the manufacturing sector, it’s time to deliver massive investment in energy sector, transport, agriculture, ICT, housing and health care. For us, instead of CBN throwing money at stakeholders in the above sectors freely, we believe it is appropriate CBN gets involved directly by owning significant parcentage shares in them.
Last, it’s time for wage increase to balance interest rate. This for us is over due. Even though the CBN may not directly lead in this advocacy, it is a means to balance the equation against price inflation, unemployment, and naira free fall that worsen our economic situation.
Lest we are reminded that we have a national minimum wage, poor and inadquate wages undermine investment, promote low productivity, low skills, and low prospects.
Ours is for a monetary policy that prioritises the prevention of inflation with decisive action to remove more Nigerians from poverty and hunger.
Olamilekan writes via [email protected]
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