James Emejo in Abuja and Nume Ekeghe in Lagos
With inflation peaking at 12.20 per cent in February, compared to 12.13 per in the previous month, analysts have urged the federal government to facilitate cheaper domestic credit to the economy.
They tasked the federal government to tackle the root causes of rising inflation, as inflationary pressures continue to distort macroeconomic indices amidst bleak prospects in the global economy caused by the COVID-19 pandemic.
The Consumer Price Index (CPI), which measures inflation, increased to 12.20 per cent (year-on-year) in February compared to 12.13 per cent in the preceding month, according to the data released yesterday by the National Bureau of Statistics (NBS).
Food inflation increased to 14.90 per cent compared to 14.85 per cent in January witnessing increases in prices of bread and cereals, fish, meat, vegetables and oils, and fats.
In their reactions, the analysts, who spoke in separate interviews with THISDAY yesterday, asked both the monetary and fiscal authorities to address issues relating to general insecurity nationwide, the land border closure and high cost of funds in the economy.
They called on the government to boost credit access to the productive sectors of the economy, particularly agriculture, services and manufacturing and pursue economic diversification with urgency.
The experts warned that unless managed properly, the fallout from the COVID-19 pandemic could worsen price instability in the country.
Also, core inflation, which excludes the prices of volatile agricultural produce increased to 9.43 per cent in February, up by 0.08 per cent when compared with 9.35 per cent in January.
According to the CPI report for February, the highest increase in prices of pharmaceutical products, non-durable household goods, catering services, passenger transport by air, repair of furniture, maintenance, and repair of personal transport equipment, water supply, carpet, and other floors coverings, major household appliances, dental services, hospital services and vehicle spare parts contributed to the 0.07 per cent uptick in the headline index during the review period.
Similarly, the urban inflation rate increased to 12.85 per cent (year-on-year) in February 2020 from 12.78 per cent recorded in January, while the rural index inflation rose to 11.61 per cent in February from 11.54 per cent in the preceding month.
According to the NBS, on a month-on-month basis, the urban index rose by 0.82 per cent in February, up by 0.10 from 0.92 per cent recorded in January while the rural index also rose by 0.76 per cent in February 2020, down by 0.07 per cent from the 0.83 per cent recorded in January.
Inflation had assumed a downward direction in recent consecutive months when it dropped in January 2019 to 11.37 per cent from 11.44 per cent in December in 2018.
The headline index further reduced to 11.31 per cent in February and 11.25 per cent in March but resorted to the upward trajectory in April when it climbed to 11.37 per cent- and further to 11.40 per cent in May- before falling to 11.22 per cent in June, 11.08 per cent in July, 11.02 per cent in August before returning to 11.24 per cent in September, 11.61 per cent in October and 11.85 per cent in November and 11.98 per cent in December- and now 12.13 per cent in January 2020 and now 12.20 per cent in February.
The rise further dampens the prospects for a lower interest rate regime as well as a reduction in the cost of borrowing given that it is unhealthy for inflation to catch up with the benchmark lending rate.
The MPR, which is the rate at which the apex bank lends to commercial banks, is currently at 13.5 per cent.
However, commenting on the new inflation data, economist and former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, said solutions could only come by addressing the root causes of the rising headline index.
He said: “Inflation is a function of certain factors affecting the consistent rise in prices of goods and services. The first step to addressing such price rise is by identifying the various factors.
“In our own case, general insecurity in the land, the land border closure, dearth of cheap funds increased cost of production arising from lack of adequate power supply, etc.
“We are expecting Coronavirus related inflation in certain goods to happen soon. Solutions can only come by addressing the root causes of the rising inflation rate.”
On his part, an Associate Professor of Agricultural Economics at the University of Port Harcourt, Anthony Onoja, said the federal government should deploy external loans towards providing market and social infrastructure to boost industrialisation and agricultural growth.
He said: “The federal government would need to increase the momentum of improving credit access to the real productive sectors of the economy, particularly agriculture, services, and manufacturing, to be able to build resilience against the stochastic forces such as the COVID-19 pandemic outbreak slowing the global economy.
“This too has affected the exchange rate negatively as naira depreciated against the US dollar in response to low demand for oil and poor price of the commodity globally. Diversification of the economy remains the key as our monolithic economic model is constantly rendering our macroeconomic indices especially inflation very volatile.
“Loans advanced by IMF or other Bretton Woods bodies should be applied in providing market and social infrastructure to boost industrialisation and agricultural growth.”
Other analysts attributed the increase in inflation in February to the continuous closure of the country’s land borders and the impact of the COVID-19 pandemic, which has continued to negatively affect the global economy.
They also forecasted that the increase may be sustained, just as they noted the impact of the slump in the price of crude oil and reduced productivity in China, which is Nigeria’s major trade partner.
Managing Director, Kairos Capital, Mr. Sam Chidoka, told THISDAY that the continuous border closure was mainly responsible for the increase.
He said: “Since we shut our borders, I have always expected that inflation would go high because we are not self-sufficient in many items. And for as long as we are not self-sufficient, prices would continue to go up as well as inflation going up. However, I think that over time it is going to moderate.
“Also, with this COVID-19 and with what is happening in China, many items are not coming in and that would bring in the forces of demand and supply pushing up inflation.”
But he anticipated that once the rains start falling and the harvest season comes, food prices would drop.
Also, the Chief Executive Officer, Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, said the increase didn’t come as a surprise.
A report by his firm stated that the increase would be the sixth consecutive monthly increase and a 22-month high.
“While inflation has maintained an upward trajectory, the rate of increase in the index has declined, indicating that the base year effect is waning.
“In addition, the CBN’s unorthodox policies have seen interest rates declined sharply by an average of 10 per cent. This has led to a significant drop in interest income and a squeeze in consumers’ purchasing power,” the report stated.
It added that in the past years, food inflation had been the major culprit of rising inflation in Nigeria.
“The impact of the partial closure of the land borders is taking a toll on food prices and creating shortages.
“The other inflation stoking factors include higher logistics costs, VAT hike and lower interest rates,” it stated.
Also, analysts at Eczellon Capital said the trend might continue and urged the federal government to review the land border closure.
They said: “Nigeria is still an import-dependent country with China being our major import partner and as a result of COVID-19, we have seen distortions in the supply causing limited supply.
“We also expect that the upward trend in the inflation rate would continue in the near term giving the fact that we have not had any vaccine or cure for the COVID-19 which would affect us in the near term.”
They noted that the significant drop in crude oil was another factor likely to push up inflation.