When will Inflation Decelerate in Real Life? - THISDAY
As the headline index continues its downward trajectory in recent months, James Emejo writes that Nigerians await the corresponding impact on prices of food and other commodities
For about 19 months consecutively, inflation wreaked untold havoc on the Nigerian economy, rising from 11.24 per cent in September 2019 to 18.17 per cent in March 2021.
Given its benign impacts on any economy, the rising prices had distorted several macroeconomic parameters, affecting both the cost of borrowing and weakening the real value of the Naira.
The Central Bank of Nigeria (CBN), whose mandate it is to contain inflation to a single digit target had been under intense pressure to respond appropriately.
No doubt the headline pressure had largely emanated from largely structural issues particularly the inability of farmers to access their farms as a result of the farmer/herder clashes, which spiked food inflation for several months.
Another contributors to inflation was the closure of the country’s land borders by the federal government to check smuggling, thereby creating some huge supply gaps along the line.
At a point in time, the monetary policy was at a dilemma on how to respond appropriately to inflation using monetary policy tools.
CBN Governor, Mr. Godwin Emefiele had warned amidst calls to lower the Monetary Policy Rate (MPR) to make finance more accessible to small businesses that such monetary easing could further worsen inflation – especially amidst lack of productivity occasioned by the impact of the COVID-19 pandemic.
Nigerians had continued to groan under the severe impact of rising food prices as most often the harvest periods have failed to douse the high cost of living.
In the midst of the growing inflationary concerns however, the CBN recorded a major break in its bid to achieve price stability when the spiralling inflation rate dropped to 18.12 per cent April 2021.
The index had since assumed a downward trajectory falling for the fifth consecutive month to 17.01 per cent in August and raising hope that Nigerians would soon feel the impact of disinflation in their daily lives.
However, this expectation may not come anytime soon.
According to the National Bureau of Statistics (NBS), the Consumer Price Index, (CPI) which measures inflation further dropped to 17.01 per cent (year-on-year) in August compared to 17.38 per cent in July, indicating the fifth consecutive months of decline.
The declaration is a major boost to the CBN’s efforts towards achieving a single digit inflation.
Emefiele, while reacting to the downward movement in inflation stated that the apex bank had been able to reverse the rate which is now in its fifth consecutive month of decline.
He said: “Reflecting several measures put in place by both the fiscal and monetary authorities…We do expect that the pace of inflation will continue to moderate in the following months as we approach the harvest season.”
In the same vein, Chairman, Presidential Advisory Committee on the Economy, Dr. Doyin Salami, pointed out that the downward trajectory of inflation will continue as the harvest season commences.
But analysts said despite the deceleration in the headline index, it was too early to celebrate, partly due to the fact that the statistics do not conform to reality.
They said though the drop in inflation was a welcome development, increases in pump price of fuel which comes with the Petroleum Industry Act (PIA) 2021 as well as higher electricity tariffs still posed major threats to prices.
The analysts, in separate interviews with THISDAY, argued that in real terms, the inflationary trend in cost of household goods had continued to increase with consistent rise in the exchange rate to the US dollar, thereby affecting importation of raw materials and the cost of goods and services.
According to the National Bureau of Statistics (NBS), food inflation slowed to 20.30 per cent in the review period compared to 21.03 per cent in July.
The NBS, in its CPI report for the month under review noted that food prices increased at a slower rate in August following moderation in prices of bread and cereals, milk, cheese and egg, oils and fats, potatoes, yam and other tuber, food product, meat and coffee, tea and cocoa.
On the other hand, the core inflation, which excludes the prices of volatile agricultural produce also slowed to13.41 per cent in August 2021, down by 0.31 per cent when compared with 13.72 per cent in July.
The highest increases in the core index were recorded in prices of shoes and other footwear, household textile, motor cars, garments, game of chance, major household appliances whether electric or not, hospital services, catering services, appliances, articles and product for personal care and clothing materials, other articles of clothing and clothing accessories.
The urban inflation rate dropped to 17.59 per cent (year-on-year) in August from 18.01 per cent in July 2021, while the rural inflation rate also slowed to 16.43 per cent from 16.75 per cent.
However, speaking with THISDAY, Managing Director/Chief Executive, Dignity Finance and Investmemt Limited, Dr. Chijioke Ekechukwu, said even though there are indications that the economy is easing off with resilient economic traction and activities, the harsh economic reality does not call for celebration yet.
He said: “Although exchange rate continues to go up, one would have expected a resultant increase in CPI but we are seeing a drop. The implication is that availability of goods and services has increased and movement of goods has eased up also. The impact of COVID-19 lock down is gradually reducing its effects.
“We should however, not celebrate yet, considering what the inflation rates of other countries experiencing the same harsh economic conditions are.”
Also, Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, further predicted the deceleration in inflation rate to continue in the wake of the Central Bank of Nigeria (CBN)’s sustained interventions in the agricultural sector particularly as the harvest season approaches.
However, he said: “So long as the implementation of the major threats to inflation are delayed. I am referring to increases in pump price of fuel which comes with the PIA 2021 as well as electricity tariffs”.
On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the deceleration in inflation could not offer the country the needed relief at the moment as the “impact of the decline in inflation from 17.38 per cent to 17.01 per cent is not being felt in the economy.
He said: “The CPI report is not in congruent with the realities on ground with unemployment rate increasing and more people moving into poverty on daily basis.
“The impact of increased borrowing by government is not also being felt and the government is now servicing existing borrowings with almost 90 per cent of generated revenue.”
Also commenting on the CPI report, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, pointed out that decline in inflation rate simply highlighted that the rate at which inflation was increasing had reduced.
He said: “Core inflation itself is still rising and can be felt by the majority of the population.
“From a socioeconomic viewpoint, we must not be overly focused on the statistics but must also look at the reality to the populace.”
Also, as rightly observed by Salami, an uptick in structural factors contributing to inflation and and high crude oil prices would mean an increase in the cost of refined petroleum, resulting in higher inflation rate in the country.
Why Gains May Be Delayed
Further providing insights on why the benefits of decelerating inflation may elude Nigerians for the moment, Shelleng said, “The falling rate does not mean that there is no inflation, it just merely means that the rate that inflation was Increasing has reduced.
“We must be careful in using statistics as it can be misleading. The average man on the street couldn’t care less about statistics unless he feels it in his pocket.
He added: “Until underlying structural issues are addressed, we can expect to see further inflation. Rise in foreign exchange, insecurity, poor infrastructure are all factors of cost push inflation.”
Similarly, Ekechukwu, explained that at the present rate of inflation, not much could be expected in improved standard of living for the ordinary Nigerian.
According to him, “At a double digit inflation rate, cost and standard of living will continue to be high. Whatever that will bring the prices of goods down, has the propensity to improve quality of life. This will come in the form of higher supply of goods and higher disposable income that can afford same. When people’s income can afford a better quality of life, then the economy will be impacted.”