A member of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC), Prof. Mike Obadan, has accused market unions and associations in the country of being one of the key drivers of the nation’s soaring inflation rate. Obadan, who stated this in his personal statement at the committee’s meeting in January, accused the market unions of hiking prices “with impunity, such that even when there are no shortages of supplies, they still succeed in setting prices that do not reflect market conditions.”
Nigeria’s inflation rose for the 17th consecutive month to hit 16. 47 per cent in January 2021, thus fuelling speculation in some quarters that CBN may be forced to raise interest rates. However, Obadan disagreed with the view that the current inflation might be due to rapid monetary expansion. According to him, the more likely cause of the increase in inflation in the country are structural factors such as “supply chain disruptions resulting from the COVID-19 containment measures; insecurity in the food producing areas of the country; land border closures till last December; deregulation of the downstream oil sector leading to hikes in petroleum product prices; upward adjustment in electricity tariffs; upward adjustment of the exchange rate and the strong pass-through effect of import prices to domestic prices and the legacy infrastructural deficits which have created serious logistics problems in the rural farming communities.”
Furthermore, he stated: “One factor that has so far not been adequately acknowledged is the obnoxious role of market unions and associations in hiking the prices of foodstuffs in the markets. These associations perpetuate monopoly and oligopoly practices in the markets, especially in the Southern part of the country, and hike prices with impunity, such that even when there are no shortages of supplies, they still succeed in setting prices that do not reflect market conditions.
“There is need to monitor their activities to ensure that competitive prices prevail and there is no unbridled exploitation of consumers.” Noting that monetary expansion probably played only an insignificant role in Nigeria’s current inflation, he cautioned that “any efforts to control money supply by tightening monetary policy through higher interest rates and increase in the Cash Reserve Requirement (CRR) by the CBN will be counter-productive during this period of recession when the primary focus should be on how to take the economy out of recession and ensure sustained high economic growth that is employment- generating and poverty reducing.” In a recent report, analysts at Cowry Asset Management Limited stated that the surge in inflation, as well as the weak naira, may pose a challenge for CBN’s efforts to boost economic growth.
They also warned that the profits of firms may be negatively impacted if the apex bank’s pro-growth policy measures are derailed by the increase in inflation and a devalued naira. According to the analysts, “efforts by CBN to support output growth via its expansionary policies may be countered by rising inflation and depreciation of the local currency, and this may negatively impact profits of corporates.”