Call for urgent intervention over Nigeria’s rising inflation rate
Last month, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) unanimously voted to increase the benchmark interest rate from 13 percent to 14 percent, to address the nation’s rising inflation.
The members of the Committee expressed apprehension over the country’s high inflation rate. The concerns expressed by the officials Committee in their personal statements as contained in the communique of the last Central Bank of Nigeria Monetary Policy Committee (MPC) meeting held in July.
Nigeria’s inflation rate rose to 19.64 percent in July, according to the National Bureau of Statistics (NBS). Driven by rapidly increasing food prices, the rate hit its highest since September 2005, a 17-year surge from 18.60 per cent recorded in the previous month.
The Central Bank of Nigeria Monetary Policy Committee (MPC) attributed the development to the disruptions to the global supply chain, tightening global financial conditions as several advanced economies pursue an aggressive regime of monetary policy normalization, declining global trade and growing risks to financial stability associated with the burgeoning global private and public debt profile.
Stemming on this unhealthy rising trend, the Monetary Policy Committee (MPC) voted to increase the benchmark interest rate from 13 percent to 14 percent, to address the nation’s rising inflation.
Though, the increased interest rate is not enough to tackle the country’s rising inflation yet the adjustment is expected to restore macroeconomic stability that carries a huge burden that cannot be borne by the Central Bank or monetary policy alone, according to the Deputy Governor, Corporate Services of the Central Bank of Nigeria, Adamu Lametek.
However, there is the need for reforms beyond the borders of monetary policy to deliver a holistic recovery in Nigeria but further tightening of monetary conditions would help to address the demand factors underlying the inflationary pressures
Inflation is hurting many Nigerians, whose nominal wages have remained stagnant for many years. It is dragging down the values of savings, wages, and pensions for retirees. Price stability is a core function of the MPC and hence, the high level of domestic inflation is unacceptable.
Many Nigerians have expressed fears about the rising rate of inflation and it remains a threat to investment and output growth. Inflation is lowering the real incomes of Nigerians and driving more people to poverty.
Referencing the decision to raise the interest rate in May, being the first time since September 2020. It is worth noting that the decision would to a reasonable extent reduce the inflationary trend, if the monetary policies are strictly adhered to.
High and rising inflation presents a serious policy dilemma for the committee given the imperative to sustain the growth trajectory, the limited tools at its disposal, and the constricted fiscal environment.
It is also sensible that, the monetary authority must act to better anchor elevated inflation expectations of economic agents following months of rising inflation and recent multiple shocks.
Interventions and continued funding of the real sector gives room for tightening the monetary policy stance to better anchor inflation expectations, mitigate demand-driven inflation and ultimately preserve output gains.
More importantly, the evolution of consumer prices in recent months and the uncertain short-term outlook present credible grounds to raise the policy rate.
Finally, the persistent rise in money supply over the last couple of months signals the growing importance of demand-side factors in explaining recent inflation trends which require a prompt response by the monetary authority. But, the response should take cognizance of the fragile output performance.
Note, also that the rising inflation in the country constitutes a major macroeconomic challenge that is exacerbated by foreign exchange pressures. Nigeria being an import-dependent economy will have its currency further depreciated as import prices become more expensive.
The foreign exchange challenge remains daunting and addressing this challenge should be of utmost importance. Monetary policy will thus seek to counteract the trend, support growth and guard against inflationary expectations becoming entrenched.
We need to agree that the current trajectory of inflation calls for drastic actions.
Apart from pressure from food prices and imported inflation, the monetary phenomenon in domestic inflation has become obvious, just as expectations seem to have also taken root.
With the growth in the major monetary aggregates at the end-June 2022 already surpassing the benchmark for 2022, we must take immediate action to douse the influence of the monetary aspect of inflationary pressure.
We therefore, encourage the Central Bank of Nigeria, guided by trends in monetary aggregates, to keep a close eye on the money supply and continue to deploy its administrative measures to manage liquidity, especially as it has shown to be a ready and effective tool in our peculiar case.
We also expect that this monetary measure would reduce unemployment, provide an enabling environment for private sector investment and offer necessary support to the health sector to cushion the impact of the various pandemics on rampage.
It also our suggestion that the CBN would continue its numerous intervention measures to boost consumer spending and support inflation recovery.