The Centre for the Promotion of Private Enterprise, (CPPE) has raised concerns over the resurgence of inflationary pressures, warning that the monetary policy measures have not subdued the drivers.
Nigeria’s headline inflation quickened to 32.7 per cent in September after a few months of deceleration. It increased by 0.55 per cent over 32.15 in August. There was also a marginal increase of 0.30 per cent in month-on-month inflation between August and September while food inflation maintained its uptrend rising to 37.77 per cent from 37.52 per cent.
The Monetary Policy Committee (MPC) unconvinced by the relative decline in inflation in July, and August, at its meeting in September, raised the Monetary Policy Rate (MPR), the benchmark interest rate by 50 basis points to 27.25 per cent from 26.75 per cent in response to the continued inflationary conditions in the economy. The apex bank retained the asymmetric corridor around the MPR at +500/-100 basis points, and also adjusted other monetary policy tools, increasing the Cash Reserve Ratio (CRR) of deposit money banks (DMBs) by 500 basis points to 50 per cent from 45 per cent and that of Merchant Banks (MBs) by 200 basis points to 16 per cent from 14 per cent. The MPC retained the Liquidity Ratio (LR) at 30 per cent.
Muda Yusuf, founder, CPPE said inflation will continue to spiral up until such factors that are largely on the supply side as the depreciating exchange rate, surging fuel price, rising transportation costs, logistics and supply chain challenges, high energy costs, climate change including resultant incidents of flooding, insecurity in farming communities and structural bottlenecks to production are effectively tackled and subdued.
In addition, he highlighted other factors including the seasonality of agricultural outputs which activate seasonal price surges in some food crops, causing elevated inflationary pressures, escalating production costs, weakening profitability, and dampening investors’ confidence.
“It is troubling that after some few months, we are witnessing a resurgence of high inflationary pressures despite monetary policy measures to tame it. Purchasing power had continued to plunge over the past few months and the surging petrol price had further exacerbated the situation”, he said.
He explained that many investors could not transfer cost increases to their consumers, and this implies that manufacturers and other investors are taking a big hit from the erosion of profit margins due to consumer resistance and weak purchasing power.
“Tackling inflation requires urgent government intervention to address the challenges inhibiting production, productivity and security in the economy. The real sector of the economy needs to be incentivised to reduce production costs”, while urging the government to offer concessionary import duty on intermediate products for industrialists, owing to the significant effect of high energy cost and exchange rate on inflation.
Yusuf maintained that government should fix issues such as unstable power, logistics, forex and security to tame inflation, warning that there are no quick fixes in these areas.
He urged prioritising these issues to drive accelerated progress with the right strategies, hoping that the proposed economic stabilisation measures embodied in a bill currently before the national assembly would substantially address these concerns from the fiscal side.
Also, he urged the sub-nationals to play critical roles in mitigating the challenge of food insecurity and inflation, leveraging their closeness to the stakeholders in the agricultural and food value chain and better placed to impact agricultural productivity, and provide rural roads to reduce transportation costs and ease access to markets.
